Yesterday Reserve Bank of Zimbabwe governor Dr John Mangudya presented the monetary policy statement for 2021. Just a year ago this statement had been eagerly awaited in business circles but this one in stark contrast was not as highly anticipated. Zimbabwe has to some extent dealt with the issues that plagued the monetary space. Exchange rate stabilised in both the official and parallel markets, inflation solidly trending downward with a slight uptick in January 2021 and cash shortages becoming the problem we prefer to ignore. The latest monetary policy was for the most part contractionary sprinkled with some forward-facing developments.


Here’s a look at some of the measures introduced by the RBZ.

Bank policy rate up from 35 to 40%

The RBZ moved to increase the Bank policy lending rate from 35 to 40%. In simple terms, the place where banks borrow money is charging them more to borrow and this will affect the rates they lend at.

Statutory reserves up from 2.5 to 5%

The RBZ also moved to double the statutory reserve ratio. This is the percentage of deposits that banks must keep on hand. Doubling this from 2.5% to 5% is another move that cripples the ability of banks to lend but it does create a more stable banking sector that can withstand short term shocks such as the one to come with the next measure.

Cash withdrawal limits increased

Daily cash withdrawal limits were doubled from $1500 to $2000. This is meant to ease things for the transacting public. With present cash shortages, this means precious little.

Mobile money limits unchanged

Mobile money transactions have been kept at $5000 per day and $35000 for the week. The war waged on mobile money in 2020 took away a lot of the functionality and with cash withdrawal limits on the up, an injection of cash into the economy could be the starting point for a phasing out of sorts of mobile money from its lofty perch.

$50 notes coming

The governor went o  to announce that $50 notes were coming to the country. I chuckled a little when the governor went on to explain that price levels in an economy are determined by the money supply and not methods of payment such as cash.  We have come a very long way.

Reserve money growth target down from 25% to 22.5%

On the issue of money supply, the RBZ revised downward its money supply growth target from 25% per quarter to 22.5% per quarter. Another contractionary move. As explained by the governor money supply determines price levels and reducing money supply growth will also reduce price level growth otherwise known as inflation.

Reiteration SI 65 A of 2020 pay interest on deposits

The governor also reiterated that banks must adhere to statutory instrument 65 A of 2020 which compels them to pay interest on depositor funds.  The governor’s focus may be on the velocity of money, in simple terms how quickly we are moving our money, particularly out of the banking system.

One step forward – Fintech regulatory sandbox

We don’t really associate monetary policy statements with forward-thinking but here is one for the ages. The RBZ will set up fint3ch regulatory sandbox. This is a live test environment that will be under supervision and control of the RBZ for financial technology instruments. The big one that comes to mind is of course cryptocurrency and while not mentioned specifically they will surely look to be the first to use this once it is up and running in March 2021.

Contractionary Monetary Policy

To explain the contractionary monetary policy simply we must take what the governor said at face value. More money in the economy chasing goods and services is inflationary. One way to solve this problem is to reduce the amount of money in the economy. Through making bank lending more expensive, encouraging depositors to move money around less and forcing the banks to keep more of their money on hand than loan it out these moves will create the effect of there being less money in the economy. This is largely what the goals of the latest monetary policy statement amount to. The goal is to curtail the recent uptick in inflation.

What comes next?

While the degree and extent are unknown we can expect a reduction in liquidity, that supply of money we were talking about that will be reduced. It would seem the RBZ goal is to consolidate the gains won against inflation and exchange rates.