In case you haven’t noticed it seems black market exchange rates are on the move again with the rate closing the day just shy of the $300 ZWL per 1 USD mark. In comparison, the official rate is still relatively stable at around the $142 ZWL mark although even the official rate has been climbing steadily after each auction. In view of this, the RBZ’s Monetary Policy Committee (MPC) has introduced a raft of new measures meant to tame the climbing rates. The RBZ has found a ready scapegoat in the Russian-Ukraine war but more on that later.

Below are some of the measures that are being introduced:

The bank is reviewing its Bank Policy Rate from the current 60% to 80%. In other words, the RBZ is trying to dissuade banks from borrowing too much and using the loans to take part in the foreign exchange market. This will ultimately mean there will be less money flowing around although even a steep rate of 80% is still not enough given the fact that participants in the black market can make profits of 100% easy. This means that even at 80% there is still profit to be made.
The RBZ is also reviewing its Medium-Term Bank Accommodation facility Interest Rate from 40%-50%. Again this is aimed at making borrowing expensive thus reducing money supply (ZWL supply) that ultimately resulting in less speculative bidding on the foreign currency market. Again will it be enough? Our rates are already a record high compared to other central banks’ rates.
Increasing the minimum deposit for ZW$ savings and time deposits from 10% to 20% again is aimed at making the ZWL/RTGS scarce in the market.
Reducing reserve money growth targets per quarter from 7.5% to 5%. This would be very effective in establishing things but the problem is that the central bank has made a habit of spending the library by effectively printing money.
Allowing individuals to sell up to US$1000 to banks on a willing buyer willing seller basis. This is probably meant to sate some of the insatiable foreign currency demand in the market but very few people are going to be willing to sell their foreign currency to banks given the paltry rates offered by banks. People would rather trade that on the open illegal foreign currency market and get what they deem to be a fair rate.
The bank wants to make sure that all imports are “processed through normal banking channels in line with international bank practice.” Now even I don’t know what this means. The Zimbabwean economy is dominated by the informal sector and thus far the informal sector has resisted putting its money in the banking system. There is so much distrust between the RBZ and the informal sector owing to past crises. There is also the fact that the central bank has a habit of springing up nasty far-reaching policies without consulting stakeholders and perpetuating a siege mentality.

Will this work?

Honestly, I have absolutely no idea but I am inclined to be negative given the fact that similar policies in the not so distant past have achieved little in terms of stability. There is also the fact that some of the policies pronounced here are rather vague with the last point being the vaguest of them all. Time will tell exactly what the RBZ means by it and once we have the specifics it will be easier to gauge the effectiveness of such a measure.

However, as I was at pains to point out the informal sector largely exists outside the bounds of the central bank as it is mostly cash-based. This means the central bank has very limited leverage on them and in the past ambitious measures meant to stop the rot in the informal sector have fallen far short of what their creators wanted or anticipated.

Blame the Russian-Ukraine war

Zimbabwean authorities loath responsibility especially when things are not going the way they should. Past misadventures by our esteemed overlords have been cheerfully blamed on drought and the ever-present excuse of sanctions. The war in Ukraine is a welcome relief and the notice from the RBZ happily blames some of our woes including rising inflation on them. In such times when there is a ready scapegoat, the authorities like to pretend that they are powerless bystanders and have little they can do to make things better.

As we have examined in a past article on fuel prices that is not necessarily true. A good part of fuel prices is composed of government taxes. A reduction of those taxes would go a long way in taming the macro-economic shocks that are coming Zimbabwe’s way.

By way of conclusion. These measures of nothing we have seen before to be blunt. We are just getting more of the same and there is little proof that the outcome will be in any way different from the manifold outcomes we have witnessed in the aftermath of similar pronouncements. The best we can hope for as we face the whirlwind of a skyrocketing rate is some respite in the form of stabilising rate.