BY KUDZAI KUWAZA
RESERVE Bank of Zimbabwe (RBZ) governor John Mangudya yesterday raised cash withdrawal limits by 100% , but fell too far short of meeting market expectations, as he tried to balance between unlocking liquidity and stemming the inflation rage.
But much to the dismay of consumers, his Monetary Policy Statement deferred the introduction of the much-anticipated $50 note, which was expected to address a dire cash crisis confronting the markets.
Instead, he reminded the markets to switch to electronic payment platforms for bigger payments and stick to cash for smaller domestic requirements.
The RBZ chief increased daily withdrawal limits to $2 000, from $1 000 last year, which will see consumers continuing to stampede banking halls to access hard cash during peak periods when they buy basics.
He maintained mobile money limits of $5 000 per transaction.
“(The RBZ will be) increasing the cash withdrawal limits to $2 000 for individuals and maintaining the current limits on mobile banking transactions at $5 000 per transaction and an aggregate limit of $35 000 per week,” he said.
“This measure will enable the transacting public to continue conducting small transactions using cash, while large transactions are conducted through electronic banking.”
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The current series of notes of up to $20 have been decimated by rocketing inflation and a price rage, which intensified since the country went into a COVID-19-induced lockdown in January.
“As previously advised, the bank shall soon be introducing a $50 banknote to augment the current stock of bank notes in circulation. The bank reiterates that bank notes, new or old, do not cause inflation in an economy since they do not increase money supply. Cash payments are an alternative to other methods of transacting and do not constitute money creation,” he said.
But in the end, the RBZ chief chose to tighten the screws on consumers, who will have to flood the black market to buy cash, where premiums are as high as 50%. The tough decision was in line with the governor’s tight inflation targets where he forecast the annual rate to drop to less than 10% by the end of this year.
“The expected decline in annual inflation to single digit levels will allow banks to meaningfully remunerate depositors, while achieving positive interest rates in real terms. In this context, the bank calls upon banking institutions to aggressively promote savings deposits by encouraging their customers to subscribe to attractive medium to long-term instruments which not only preserve value, but also enable productive sectors to borrow on a long-term basis,” he said.
In December, Finance minister Mthuli Ncube had projected annual inflation to fall to 136% at the end of 2021.
However, an inflation rate of less than 10% appears overly optimistic given the headwinds that still confront Zimbabwe, as basic commodities rise.
Analysts at Morgan &Co have forecast significant rises in black market exchange rates, which could hit US$1:$200 by the end of the year, from about US$1:$130 currently.
The rate was about US$1:$120 most of last year.
Black market rates drive exchange rate trends in Zimbabwe, where the official system has struggled to satisfy demand by industries and government.
As pockets of shortages emerged on the black market, the Zimbabwe dollar has also depreciated on the foreign currency auction system, where it is currently trading at about US$1:$83, from about US$1:$81 most of last year.
Inter Horizon Securities this week said while a good agricultural season may calm market jitters, heavy rains may also affect yields in key export crops and undermine projected foreign currency inflows.
The RBZ stuck to the 7,4% gross domestic product growth announced in December.
“Notwithstanding COVID-19-related challenges, the bank remains optimistic that the expected economic growth of 7,4% in 2021 is achievable,” Mangudya said in his monetary policy statement.
“The bank also projects annual inflation to close the year at below 10%. The measured optimism is based on the expected significant growth of the agricultural output in 2021, as a result of the good rainy season, fiscal sustainability and the bank’s focus on price and financial system stability,” the RBZ governor said.
