Zimbabwe’s monetary authorities are optimistic about strengthening productivity and stability through the central bank’s two-tier interest rate policy regime.
With both tepid growth and inflation in the country, the central bank has been stuck in a dilemma, but has now developed dual rates to deal with both production and speculative borrowing by citizens.
The year 2022 will mark the second year of the National Development Strategy One, which is anchored on real economic productivity and enhanced macro-economic stability, hence the central bank has come up with a two-tier interest rate policy regime to support this vision.
It is against this background that the Reserve Bank of Zimbabwe is committed to eliminating macro-economic imbalances by implementing a real interest rate regime to avoid speculative borrowing and channel resources for productive purposes.
“The year 2021 was a learning curve and it is now incumbent upon the RBZ to implement the lessons learnt last year in as far as achieving stability is concerned and it is, therefore, not surprising that the RBZ is following a two-tier interest rate policy, one for productive purposes and the other one being a punitive one to stifle speculation borrowing, which increases money supply growth unnecessarily,” said Persistence Gwanyanya, RBZ Monetary Policy Committee member.
Through the medium-term bank accommodation 60 percent interest rate policy, financial institutions have successfully managed to offer the productive sector monetary support in excess of $5 billion.
On the contrary, this publication found out that local firms have been forced to stay away from tapping local banks for fresh capital in foreign currency for retooling as they consider the lenders’ interest rates punitive and unattractive.
According to official data obtained from the Reserve Bank of Zimbabwe (RBZ), the lenders have an estimated US$1.8bn lying idle in their foreign currency accounts. However, the US$1.8bn has found few takers due to high borrowing costs, which are as high as 60 percent per annum.
The few that access forex credit are the hardest hit and are said to be finding it hard to meet repayments. They are now saddled with higher capital costs, which are likely to continue hurting them.
To a larger extent, the impact of the forex credit crunch is that local industry will continue to be uncompetitive as a result of obsolete machinery which is inefficient.
Analysts also say it will cost more for companies to borrow money for working capital from commercial banks as well as the capacity to pay back loans. Low interest rates tend to reduce the cost of borrowing and encourage credit starved companies to borrow.
The high interest rates will cause fewer investment projects to be profitable, they say – HARARE