Local banks are engaging the Reserve Bank of Zimbabwe (RBZ) to persuade the apex bank to loosen the tight monetary policy stance and avoid a possible economic and financial crisis, Business Times can report.
The banks said the cash crunch, triggered measures that resulted in the mopping of excess liquidity in the market as part of efforts to contain volatile exchange rates and rising annual inflation, have upset markets.
They said it could also paralyse the agriculture sector and business.
The government has identified the agriculture industry, alongside mining as the anchors of Zimbabwe’s economic turnaround.
The Bankers Association of Zimbabwe (BAZ) president, Mehluli Mpofu, confirmed the discussions between the banks and the RBZ saying it was time for the central bank to start changing gears as the obtaining liquidity squeeze will dampen economic growth due to limited lending in the market.
“We are engaging the central bank over a very tight monetary policy stance which led to liquidity crunch and limited lending to productive sectors,” Mpofu said.
“In as much as we would like to contain exchange rate movements and inflation, industry and agriculture need working capital hence we are choking them and projected economic growth may be difficult to achieve if the current situation persists.”
Added Mpofu: “We are already in September and the 2022/2023 summer cropping season has already kicked off as irrigated tobacco planting is underway. With this liquidity squeeze in the market, the desired agriculture growth will be difficult to achieve.
As an agro-based economy, agriculture performance is key to economic growth hence if the sector doesn’t perform well, this will affect next year’s economic projections.”
The Confederation of Zimbabwe Industries president, Kurai Matsheza, said the deteriorating liquidity conditions were severely afflicting industry and commerce.
“Businesses are facing a funding squeeze and this has affected aggregate demand as there is no traffic in the shops and the industries,” Matsheza said.
BAZ chief executive officer Fanuel Mutogo recently told Business Times that the liquidity squeeze has affected agricultural lending.
“There is a need to strike a balance between containing inflation and exchange rate and allowing lending for productive sectors.”
Another banker, who preferred anonymity, told Business Times that the situation was dire as deposits have also dwindled.
“If not carefully observed, the tight monetary policy stance may cause some people to lose their jobs as the employers may not see the reason for keeping such huge staff for sitting the whole day,” the banker said.
Experts say the tight monetary conditions could weaken the banking sector, whose profitability has already been hit, largely due to low lending, which has been curtailed by high interest rates, low deposits and liquidity crunch in the market.
This, the lenders said, will also endanger stability in the banking sector.
But the government seems reluctant to move away from its tight monetary and fiscal stance.
The Ministry of Finance and Economic Development also suspended payments to contractors who supply goods and services to government departments as part of efforts to halt a slump in the local currency which was fuelling hyperinflation.
“We will keep on checking the government contracts and procurement processes by undertaking value for money audits. At the same time the central bank will further tighten monetary policy to curb forward pricing and speculative behaviour,” Finance and Economic Development Minister, Mthuli Ncube said.
In a survey carried out by Business Times, airtime vendors and money changers are feeling the heat over the current liquidity squeeze.
“I was a money changer two months ago but after I saw that I am not getting RTGS to make transactions, I decided to sell airtime and on airtime, only US$ cards are selling as people don’t have RTGS to buy local currency airtime. We are in a quandary,” an airtime vendor said.
During a liquidity crunch, businesses and consumers are charged high interest rates on loans, a situation which makes it difficult for them to repay the loans.
The central bank recently increased the interest rates to 200% from 80%.
The local currency remained under pressure as annual inflation continued on an upward trend, jumping to 285% in August from 257% in July.