Bonus payments to civil servants and other stakeholders will not have an impact on price stability or the exchange rate ahead of the festive season, Reserve Bank of Zimbabwe (RBZ) Governor Dr John Mushayavanhu has said.
Both the official and parallel market exchange rates have stabilised after recent policy measures which have reduced excess liquidity in the market and curtailed speculative demand for foreign currency.
Dr Mushayavanhu told The Sunday Mail that, as Government workers’ bonuses are being paid in both the US dollar and Zimbabwe Gold (ZiG), with a larger component in hard currency, “the impact on the exchange rate should be limited”.
“Furthermore, the Government has already budgeted for civil service bonuses, which are accommodated within Government revenues, implying no significant impact on exchange rate and prices. Consequently, the Government is expecting substantial revenue inflows from the fourth quarter quarterly payment dates (QPDs),” he said.
The festive season, he further said, typically sees increased economic activity and consumption, with retailers offering discounts to boost sales.
“In addition, the country experiences an increase in diaspora remittances as diasporans return home for the holidays. As a result, the net effect on exchange rate and prices is likely to be minimal,” added Dr Mushayavanhu.
The central bank believes the tight liquidity conditions resulting from recent policy measures have successfully reduced excess liquidity in the market and curbed speculative demand for foreign currency, which, in turn, has led to a narrowing of the parallel market premium.
“The measures included increasing the bank policy rate from 20 percent to 35 percent, raising statutory reserves to 30 percent and enhancing the flexibility of the exchange rate on the foreign exchange interbank market,” he said.
“In addition, the increased flexibility in the willing-buyer, willing-seller interbank foreign exchange market has led to a positive response in foreign currency supply. This has measurably contributed to currency and price stability in the economy. The Reserve Bank’s tight monetary policy stance will continue to have a positive impact and result in further narrowing.”
The Liquidity Management Committee (LMC), comprising representatives from the central bank and Treasury, has been convening regularly. The committee’s primary objective is to coordinate liquidity management within the economy, thereby mitigating any emerging liquidity and exchange rate risks that could potentially compromise price stability.
“To complement the LMC, the RBZ has re-established the Open Market Operations Committee, which also meets regularly to manage liquidity in the economy,” Dr Mushayavanhu said.
“The operations of the above committees have contributed to the stability currently prevailing on prices and foreign exchange markets.”
The country’s total reserves, including gold, currently stand at approximately US$540 million, significantly higher than the reserve money, which amounts to about ZiG4 billion (equivalent to US$155 million), providing a reserve cover of more than three times.
This represents a substantial increase from the US$285 million in foreign reserves held when ZiG was introduced in April.
The total foreign reserves of US$540 million (ZiG14 billion) now notably exceed the total deposits in the banking sector, which currently stand at approximately ZiG12 billion (equivalent to US$467 million).
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