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Bank lending ban will stifle financial institutions: BancABC


Unworkable interest rate will harm economy



THE central bank’s move to hike interest rates to a record 200%, the highest in the world, will grind business to a halt, analysts have said.


With a grin on his face, Finance minister Mthuli Ncube responded to questions from journalists inside the Finance ministry boardroom. His body language betrayed a troubled man, with a lot to fix.

Two days after the Zimbabwe Statistical Agency announced that inflation had hit 191%, it was time to act.

Both monetary and fiscal policy authorities had to burn the midnight oil to give the nation some sort of explanation or intervene to tame runaway inflation.

As Ncube buckled under a barrage of questions from journalists, Reserve Bank governor (RBZ) governor John Mangudya’s statement was released.

While Ncube’s statement spelling out the government’s wish list for the civil service and the decision to legislate the use of the multi-currency did not constitute breaking news, the central bank governor had juicier news to tell.

With inflation nearing 200%, the Monetary Policy Committee had to convene a meeting to discuss the turn of events and proffer a solution.

A 200% interest rate would help “tame” inflation, the committee said in a statement.

“The committee noted that the increase in inflation was undermining consumer demand and confidence and that, if not controlled, it would reverse the significant economic gains

achieved over the past two years,” the committee said in a statement.

Zimbabwe’s new interest rate is the highest in the world.

The southern African country is not new to breaking records, especially after 2008 when the inflation figures reached billions, where Zimbabweans needed bucketloads of cash to buy a loaf of bread.

Over a decade after Zimbabwe became the butt of jokes around the world, another record is broken. There is nothing funny about the current pronouncement. In fact, it warrants a tear or two, because the implications of the hike in interest rates are far-reaching.

The business community has remained mum on this issue, but analyst Rashweat Mukundu believes economic activity will be subdued considerably.

Just a month after the government suspended bank lending, accusing bankers of fuelling arbitrage on the market, Zimbabwe is staring economic decline in the face.

It is trite economics that working capital is the life blood of companies and the cornerstone of any business.

Working capital mainly constitutes short-term loans from banks, offered to companies that have a healthy cashflow.

Mukundu argues that hiking interest rates would make it expensive to borrow from banks, while financial institutions may fail to survive the tough times if companies are not asking for credit.

The situation is untenable for both banks and companies.

“The fact that Zimbabwe now has the highest interest rates points to the fact that it will be more difficult for individuals or businesses to borrow,” Mukundu said.

“Essentially, investment and job creation will grind to a halt because of high interest rates. Business and individuals will not be able to sustain their business model,” he added.

He opines that Ncube has failed to deal with currency volatility and inflation through several policy interventions.

It is apparent that the lack of trust in economic policies, mainly the local currency, has driven the country into the mire, a few years after citizens embarked life with renewed hope when Robert Mugabe’s government was ousted.

“The Finance minister has failed to deal with this issue through his policy interventions, so we are seeing the economy grinding to a halt anytime soon,” Mukundu said.

The announcement by the central bank this week is tantamount to applying a band aid on a broken leg.

“There is no comprehensive redress of the lack of trust and lack of faith in the economic policies of this government. What we are seeing is the patching of the cracks,” he said.

Current economic policies betray a government groping for solutions in the dark and an administration whose existence is riddled with misfiring.

Ncube this week admitted there was a lack of business confidence.

“The market’s lack of confidence in multi-currency is causing us problems, but I’m here to assure you it will remain in place for the next five years,” Ncube said.

Legislating the use of the US dollar as a transactional currency is meant to restore investor and local confidence, but the raising of interest rates does the complete opposite.

President Emmerson Mnangagwa’s “Zimbabwe is open for business” mantra rings hollow on account of self-defeating policies.

Economost Persistence Gwanyanya said the hiking of interest rates will reduce borrowings and usher in stability.

“With that aggressive measure, the expectation is to trim the economy of excess baggage of borrowings. If we reduce borrowing, we are effectively encouraging liquidation of the US dollars. Because of the hiking of the interest rates we expect the repayment of some loans and the liquidation of the Zimbabwe,” Gwanyanya said. “We expect a measure of scarcity of the Zimdollar. The cocktail of measures is expected to ensure stability,” he argued.

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