President of the Institute of Chartered Accountants of Zimbabwe (ICAZ), Duduzile Shinya has said the Reserve Bank of Zimbabwe’s (RBZ) monetary policy measure to increase the interest rate will further negatively affect organizations that are already under economic stress in the country.
Businesses have experienced volume decline during the current lockdown phase and the RBZ decision will have negative effects on the economic growth projections according to the ICAZ president.
Shinya said, “… there is a downside where the cost of financing for organizations who are already under some sort of economic stress are going to feel it.” sic
RBZ governor increased the bank’s policy rate for overnight accommodation from the current 35% to 40% per annum and the medium-term lending rate for the productive sector lending from 25% to 30% per annum.
Shinya went on to further discuss the need for recovery facilities in the background of the increased interest rates.
“Facilities may need to be put in place that can also allow businesses during this economic downturn to be able to recover in terms of getting back on to their feet and moving the economy forward allowing volumes to increase again,” she said.
“A lot of consumers have been basically sitting at home, so there is need to be that stimuli coming through from the demand base.”
“Restrictive measures to ensure that facilities are not abused for speculative purposes definitely need to be in place but we need to see how we can further enhance to allow economic recovery processes,” she went on.
Chairman of the Banking and Economic Standing Committee at the Confederation of Zimbabwe Industries (CZI), Jimmy Psillos was however positive on the RBZ’s decision to increase interest rates.
“I know there will be complaints from others that these types of interest rates to mitigate against the productive sector, unfortunately, you can’t have everything in life,” he said.
“The way to look at it straight really is forecast inflation. When you at it against forecast inflation you find that interest rates certainly. If they are not positive they are very close to positive.”
“If you are borrowing at 50% and year on year inflation by the end of the year is going to be 10%, you are borrowing at quite a premium turn inflation.” Psillos went on.
RBZ governor Dr. John Magudya predicts that Zimbabwe’s inflation will be below 10% by December 2021.
Mangudya revealed that the increase in the interest rate is to discourage speculative borrowing.
“The decision on interest rates takes into account the current liquidity conditions in the market and the need to continue controlling speculative borrowing,” Mangudya said in the latest monetary policy.