The much-awaited Monetary Policy Statement (MPS) was finally announced on 20th February 2019, much to the relief of many Zimbabweans most of whom had started to adopt a wait and see approach in anticipation. Reserve Bank of Zimbabwe (RBZ) Governor Dr John Mangudya touched on many of the areas as expected albeit throwing in some surprises, twists and turns. We highlight the major issues characterising the MPS below.
The Inter-Bank Forex Exchange Market
The MPS establishes an Inter Bank Foreign Currency Exchange Market to regularise the buying and selling of forex. The statement announces, “… establishing an inter bank foreign currency exchange market in Zimbabwe to formalise the trading of RTGS balances and bond notes with US$s and other currencies on a willing-buyer willing-seller basis through banks and bureaux de change…” The framework for this arrangement includes denominating RTGS balances, bond notes and coins as RTGS dollars which will be used for pricing of goods and services, recording debts, accounting and settlement of domestic transactions. In addition, the expectation is that prices should remain unchanged or actually decline as the exchange rate stabilises. The MPS goes further to advise that under this framework, letters of credit and/or the forex allocation committee will continue to be used to avail foreign currency for government expenditure and procurement of essential commodities like fuel, cooking oil, electricity, medicines and water chemicals.
Foreign currency retention thresholds
With regards to forex retention, the MPS comes up with slight changes. Manufacturers are pegged at 80%. Gold miners, whether large or small, are at 55% while tobacco and cotton growers are at a painful 30%. Surprisingly, tobacco and cotton merchants are at a much higher 80%, just like horticulture, transport and tourism. According to the RBZ Governor, this is meant to allow exporters to benefit from the inter bank forex exchange market and to promote uninterrupted foreign currency supply. It is also surprising that exporters are expected to utilise their retained foreign currency within 30 days, failure of which, it will be offloaded into the market at prevailing rates. This implicitly seems to discourage saving.
IFRS 9, Macro Prudential Policy and EMV technology
It must be noted that the MPS also touches on International Financial Reporting Standards (IFRS) 9 as being a significant milestone in financial stability enhancement. The MPS sets 30th June 2019 as the date on which the Macro Prudential Policy will be in operation. This policy is envisaged to provide for macro prudential tools, transparency, governance and accountability. All financial institutions are then encouraged to be Electronic MasterCard Visa (EMV) compliant by 31st March 2019. The MPS also gives an update on cyber crime directing banks to update their cyber security policies by 31st March 2019.
So, there we have it, the Monetary Policy Statement. As economists and laymen start digesting it and predict what the future holds, the hope is that it will not drive the country into another bout of inflation. Hopefully, a change in fortunes awaits.