BY MTHANDAZO NYONI
THE Reserve Bank of Zimbabwe (RBZ)’s decision to hike the overnight lending rate to 40% will result in companies struggling to fund production and threaten the economy with de-industrialisation, according to two key analyses of the recently announced monetary policy statement (MPS).
The policy rate had been kept at 30% most of last year under a central bank strategy to manage inflation.
In a series of reviews announced in the MPS last month, the RBZ also increased the medium-term lending rate for productive sectors to 30% from 25%.
The central bank said a rate hike could help the markets address speculative borrowing, which has been blamed for tepid growth.
In the past week, the Zimbabwe National Chamber of Commerce (ZNCC) has been expressing concerns over a series of changes made by RBZ governor John Mangudya saying rate hikes were ill-timed for under-fire businesses fighting to survive the Covid-19 pandemic.
“Businesses cannot afford any further interest rate hike, worse still given the absence of an affordable relief facility to neutralise negative effects of Covid-19 on corporate performance,” the ZNCC noted.
“We are against the upward revision of interest rates (overnight accommodation) regardless of stubborn inflationary pressures.
“This will certainly not discourage speculative borrowing given that its catatonic policy uncertainty, not negative interest rates, which had been driving disruptive speculation,” the ZNCC said, warning the central bank that by tightening liquidity conditions, it was suffocating credit expansion in banks and denting prospects for quicker economic recovery.
In the MPS, the RBZ stuck to the 7,4% 2021 growth rate projected in December last year.
However, it said annual inflation would end the year at less than 10%, compared to a projected 136%.
The ZNCC’s critique came in as the Zimbabwe Coalition on Debt and Development (Zimcodd) said the central bank’s move would make it difficult for companies to access liquidity.
Zimcodd agreed, however, that the central bank would be making life difficult for speculative borrowers.
“These measures (make) the cost of borrowing more punitive.
“They are expected to tighten local currency liquidity in the market and discourage speculative borrowing,” Zimcodd said.
“The negative side effects of these measures will result in a stalled economic rebound as many companies will struggle to access capital for production.”
Zimcodd warned the RBZ against exposing households and businesses to “exploitative debt arrangements” through poorly regulated or unregistered companies that offer loans.