The New Monetary policy( 2-2-07)

THE Reserve Bank of Zimbabwe (RBZ) governor, Gideon Gono, finally
presentedthe 2006 fourth quarter Monetary Policy Statement on Wednesday in
which, hedid not devalue the Zimbabwean dollar as was expected by the market.
Gono said the devaluation could only be done after the structural

issueswere attended to in the short term. He also decided to maintain the
interestrates at the current levels saying the inflation rate would determine

Gono said there are considerable divergences of views on the issue and
benefits of devaluation in the country, with strong views being put
forwardthat previous devaluations carried out over the past 3 years seem not
tohave yielded significant benefits for the country.

“For the record, this Governor has successively adjusted the exchange
ratein response to exporters’ plight more than eight times since taking up
office in December 2003, on the back of promises to our Principals in
Government that such moves were going to see exporters increase their
receipts into the economy,” sad Gono when presenting the statement.
Gono added, “It is clear that the foreign exchange market set-backs are
supply and demand issue, linked to sanctions against the country,
linked tolack of balance of payment support, linked to smuggling and
indiscipline inthe economy, linked to shortage of a fund to support whatever
devaluation wemay contemplate, and above all, linked to poor performance of the

“To talk of a market rate when these structural issues remain
unattended tois to be simplistic about this multifaceted policy area,” he said.
Gono said the bank’s interest rate policy would continue to be guided
byinflation developments and outlook.
He said at current levels of the central Bank accommodation rates for
secured and nonsecured lending to banks, which are, 500% and 600%,
respectively, the interest rate framework is appropriately aligned to
bothdevelopments and outlook on the inflation front.
However, Gono said experience over the past 3 years has amply
demonstratedthat singular application of traditional monetary policy tools, such as
interest rates, in the absence of concerted, holistic, well sequenced
policypackages will only serve to throw the productive sectors deeper into
stagflation – low capacity utilization co-existing with high inflation.
He said within the framework of the “Roadmap to Our Recovery” proposed
inthe Policy Statement there is need to use the month of February 2007,
as thesoul-searching period, marked by decisive collective implementation of
measures that remove the devastating distortions which have hitherto
stoodin the way of all efforts to turnaround the economy, before we can
announcean interest rate framework that is consistent with an agreed program of
holistic measures.In a bid to fight the galloping inflation, Gono also said that annual
money supply will be reduced from the levels above 1 000% to between
415%and 500% and 60% by end of 2008.

Gono said in order to achieve the set monetary aggregates, the Reserve
Bankwill continue to closely manage money market liquidity conditions
with this, during the second half of 2006, the money market has largely
been kept in a short position, so as to buttress efforts to fight inflation.
However, analysts said Gono’s decision not to devalue will result in
exporters facing serious viability problems.
“Devaluation was imminent. Net exporters will cry foul over this
development,” an analyst from Interfin said.
He said the distortions in the tourism in the tourism are likely to
continuefollowing this development.
He added that the market a similar trend in interest rates.
In his policy presentation Gono also announced that a company called
Fisco(Pvt) Ltd, 100% owned by the RBZ, has also been established to which
all thequasi-fiscal operations would be confined.
He also said 20% of fertilizer producer’s export proceeds would be
exemptedfrom surrender requirements.
Tobacco producers will also remain entitled to the 15% retention
thresholdwhile there will be no more fuel, seed etc subsidies for farmers but
government will give them market prices for produce.
Gono said cumulative gold deliveries in 2006, stood at 10.96 tonnes
painting a disappointing picture in this critical sector when compared to 21
tonnes achieved back in 2004.15.2 Year 2005 was similarly lower than 2004,
with total gold deliveries to the Reserve Bank amounting to 13.45 tonnes

In a bid to boost foreign currency inflows which has been scare in the
country since the 2001, The Reserve Bank governor announced that Money
Transfer Agencies (MTA’s) pay recipients in foreign currency without
Gono in 2004 had ordered that MTA’s to pay recipients in Zimbabwe the
equivalent of the foreign currency in Zimbabwe dollars using interbank
“In order to promote the free flow of foreign currency in the economy,
with immediate effect( January 31), recipients of transfer from the diaspora
can be paid their funds in foreign exchange without limitations,” Gono
“This way, stakeholders with relatives abroad, who to this point were
shunning the safe, legal authorized dealers and money transfer avenues
of receiving funds can now transact through the formal system,” added
Gono.The Reserve bank which closed 16 MTA’s last year for has since
re-registered 7 of them.

“Stakeholders will be aware that the Reserve Bank has since embarked on
the re-licensing of MTA’s on condition of a strict surveillance framework
to ensure compliance with set regulations.
“In order to further strengthen the operations of MTAs an Association
of Money Transfers will b formed, during this first quarter of 2007,
government by a binding ode of ethics and operation, breach of which may trigger
expulsion and eventual closure of the institution,” said Gono.

Post published in: News

Leave a Reply

Your email address will not be published. Required fields are marked *