THE Reserve Bank of Zimbabwe (RBZ) has capped interest rates at 12 percent per annum from 18 percent and further reduced bank charges in a bold move meant to enhance financial sector stability and stimulate production across various sectors of the economy.
Announcing a cocktail of measures to bolster investment growth in his 2017 Monetary Policy Statement released yesterday, RBZ Governor Dr John Mangudya (pictured top), said access to affordable credit was crucial in creating a flourishing economy.
He implored financial institutions to support the productive sectors of the economy to enable them to invest, create jobs and boost exports.
"With effect from 1 April 2017, all banking institutions are required to ensure that lending interest rates should not exceed 12 percent per annum and that bank charges that include application fees, facility fees and administration fee, should not exceed three percent," said Dr Mangudya.
He said while the central bank was pleased to note that banks were working towards reducing lending rates, the prevailing levels were still relatively higher when other ancillary charges and default interest rates are applied.
The RBZ last December ordered a downward review of cash withdrawal charges that came into effect on 12 December when the bank adopted a proportional pricing model to replace the fixed charges and align cash withdrawal charges to amounts withdrawn.
The Governor said a $70 million nostro stabilisation facility was being set up to address delays that banks are experiencing when processing offshore payments. Several companies had raised concern over depletion of nostro reserves, which they said were threatening the viability of their businesses.
Dr Mangudya announced the extension of the $200 million African Export-Import Bank (Afreximbank) Trade Debt-Backed Securities (Aftrades) facility by a further two years to expire in February 2019. The facility, which operates and functions as a window of last resort at the Reserve Bank for local banks, has been of great assistance in the bank's mandate of maintaining financial sector stability and inclusive growth.
The Governor expressed concern over the continued externalisation of the scarce foreign exchange as evidenced by the $206 million paid in DStv card subscriptions through nostro accounts.
Commenting on the introduction of bond notes, Dr Mangudya said the facility has been well received by the market and since November last year, $94 million worth of notes have been injected against an aggregate value of the export incentive of $107 million.
He said the five percent export incentive scheme under bond notes facility would be extended to the tourism sector and cotton growers. The mining sector, tobacco farmers and other value added exporters are already enjoying the export bonus.
Dr Mangudya said it was crucial to reward the tourism industry's contribution to foreign exchange generation in view of the loss of competitiveness of the industry mainly due to price differential between Zimbabwe and the region.
In view of good rains and progress made in the agriculture sector so far, he said the country was expecting to produce around 1,5 million to 1,8 million tonnes of maize and other cereals.
Dr Mangudya stressed the need for Government to mobilise sufficient funding on time to capacitate the Grain Marketing Board (GMB) and Cotton Company to pay farmers on time for produce deliveries.
In line with the thrust of enhancing production and increasing export earnings, the Governor said the $20 million loan support scheme for small scale gold miners would be increased to $40 million.
"This facility is being enhanced on account of the importance of the gold sector to the Zimbabwean economy and the fact that the bank is pleased by the utilisation of the existing facility, which stands at $12.5 million," he said.
Dr Mangudya said the facility together with the five percent export incentive scheme and the positive effect of compliance monitoring by the Gold Monitoring Committee, is expected to boost gold production.
He said inflation was expected to move into positive territory of around one to two percent in 2017 for the first time since September 2014, on the back of anticipated increase in international oil prices and domestic sector recovery.
The central bank governor said this positive trajectory was expected to be reinforced by the general recovery of the economy in 2017 on account of the expected strong agricultural outturn which is going to increase disposable income.
Meanwhile, banks maintained a positive growth trajectory having closed year 2016 with $181 million profits, recording a 42 percent increase from $127 million in 2015.
"Total deposits also increased by 6.10 percent from $6,14 billion in September 2016 to $6,51 billion in December 2016. The level of non-performing loans (NPLs) dropped from a peak of 20.45 percent in the ratio of NPLs to total loans to 7,87 percent.
In view of illicit financial dealings, Dr Mangudya said the central bank would intensify surveillance measures to combat money-laundering, tax evasion and transfer pricing by enhancing the scope of monitoring suspicious transactions as well as working closely with relevant stakeholders.
He emphasised the need to implement policy measures to address structural reforms that relate to the ease and cost of doing business, fiscal consolidation, improve operations of state owned enterprises and introduction of incentives to expand output and productivity.
These measures, said Dr Mangudya, are necessary in assisting the country in its efforts to pursue a new economic development model that is anchored on an export-led growth strategy to balance exports and imports while simultaneously addressing the structural rigidities besetting the economy.