HARARE – The Reserve Bank of Zimbabwe (RBZ) will review the recently announced suspension of bank lending this week as it prepares to investigate contractors over allegations they are fueling the black market.
In an unrestricted interview last week, RBZ Governor Dr. John Mangudya said the temporary suspension was a necessary inconvenience in their quest to establish the cause of the current exchange rate volatility and rising currency. the resulting inflation.
He said those who criticized the move resented the fact that some companies were borrowing funds and dumping them on the parallel market.
“The suspension will be reviewed next week (this week),” he said.
On May 7, President Mnangagwa announced a series of measures aimed at stabilizing the Zimbabwean dollar and restoring common sense to the market.
These included the suspension of lending by banks to government, businesses and individuals to halt the growth of the money supply.
Without divulging much, the central bank chief confirmed that investigations have so far yielded valuable clues.
“What we found was what I told you, that other companies were borrowing heavily from the market or from banks with the intent of using that money to buy their products and manipulate the exchange rate, what is called a currency attack,” says Dr Mangudya.
“They attack the currency so that it depreciates, then they repay their loans. In fact, they profit from borrowing. Because the exchange rate adjustment is greater than the interest the bank will get. That’s why the interest rate route was never going to work for these guys.
“Because even if you put the rate at 80%, the rate will depreciate much faster even if you put it at 100% or 150%.
“As I read from Professor (Steve) Hanke, who said you have to raise the rate to 166%, even if you put 166% they will send the parallel market rate much higher than the value of the ‘interest.
“By doing so, you continue to chase your tail because they move the target. Because their job is to attack the currency.
The central bank said it will also investigate contractors hired by the government for major infrastructure projects such as roads and dams to establish the veracity of claims that they were dumping large sums of money on black market.
“That’s why I said to have a ceasefire for now in terms of lending, and then we’ll see if it’s them (the entrepreneurs) who (move the rate). Will also investigate them to see if their invoices are correct or fair, or if they set their prices using the willing buyer and willing seller rate.
“In any case, we also understand that the government also pays some of these contractors in foreign currency so that the appetite for foreign currency will be reduced because they will have foreign currency from the government to buy their bitumen, their parts of their spares, tools and fuel that they need for the roads. So that means whatever balance they get in local currency, they should be able to keep it in that country. But if they want to preserve the value by going the resell by fueling inflation, then these are not the right people working for us,” he said.
He said if they did it would be a shame because they would bite “the hand that feeds them and yet tomorrow they will still want to eat”.
Industry lobby groups such as the Zimbabwe National Chamber of Commerce have indicated that money paid to contractors could end up in the gray market.
“The Zimbabwean dollar paid by the government to contractors ends up chasing the greenback in the parallel market as they seek to preserve value,” ZNCC said in its submissions to the Ministry of Finance and Economic Development and the RBZ.
Dr Mangudya said investigations were also underway to establish other potential sources of funds flooding the market.
“Perhaps we will look for other sources. Are there cryptocurrencies in the economy being created or is there someone creating money that is not the central bank or banks. So that at least we shift the blame from the banks and the Reserve Bank to these other people.
The country’s economy, which is widely expected to grow by 5.5%, has seen increased currency volatility and rising prices for goods and services in recent months, prompting the government to step in with policy interventions. fiscal and monetary to stop the situation.
Dr Mangudya said some of the measures have already started to bear fruit.
For example, the willing buyer, willing seller system had seen millions of dollars traded.
He challenged Zimbabweans to let go of negativity as it affects progress.
“This economy is a sentiment-driven economy. It is an economy based on negative perception. So we don’t act by faith but by sight… What we need in Zimbabwe is a bipartisan approach. This idea of having a partisan approach to the economy doesn’t work…” – Sunday Mail