On Wednesday in a joint statement from the Reserve bank Governor Dr John Mangudya and Finance Minister Professor Mthuli Ncube, a rule was announced among a cocktail of measures that would compel banks to pay interest on deposited funds. This was to be extended to mobile money wallets. Statutory Instrument 65 of 2020, yes the 65th Statutory instrument of the year, was gazetted on Friday to do just that.
Too little too late
The new regulation includes call, demand deposit and mobile money trust accounts. This is a delayed reaction to what has been present in the market for a very long time. The move is meant to encourage people to maintain balances in these accounts. Zimbabweans presently either spend money on what they need to or purchase US dollars to maintain the value of their money. While the Finance minister disagrees with this, to buck the trend people would need to see some sort of value in keeping money in their accounts. As pointed out in a previous article, the interest would have to be very attractive. With year on year inflation estimated at over 500% and the currency has shed nearly 50% of its value year to date.
The prescribed interest rates for these depositor funds are 50% of the Treasury bill yield (14% after the last auction) for amounts with a duration of fewer than 30 days, which amounts to 7% per annum. On amounts with duration over 30 days the interest will be 75% of treasury bill yield, 10.5% per annum. As standalone figures on risk-free call accounts, these sound great however they are ridiculously dwarfed by inflation. The instrument states that the interest should be derived from Treasury bills of similar tenor to the duration of deposit, I’ve used the latest issue of 180 day Treasury bills for illustrative purposes only
What about FCAs?
The statutory instrument was however eerily silent on FCAs in this equation. 10% interest on a Zimbabwean dollar account means very little with inflation and currency depreciation. 10% on a US dollar or other foreign currency account would mean a lot to someone as the currencies are stable, certainly compared to our local unit. One would honestly have to look at the intention of the instrument to see why this idea wouldn’t work. Zimbabweans have required interest on deposits for many years now and the move comes just too late to make any real impact. The little trust with the banks was eroded when US dollar savings were converted to RTGS dollars and now Zimbabwean dollars.
Action is certainly required in the monetary space to contain inflation . Attacking the rate of interest people receive on deposits should be further down the totem pole of priorities with so many glaring inconsistencies in our monetary management. We should, however, expect to see a lot more action coming from the minister’s office in the short term.