Unpacking yesterday’s monetary policy

Mangudya said the RBZ is in the final stages of negotiations with the African Export Import Bank (Afreximbank) for a US$500 million guarantee facility to support the restoration of the FCAs and ensure depositors are able to access their funds upon demand.

This new facility is expected to be in place by the end of October 2018.

Buried deep inside the February 2018 monetary policy statement is a poorly communicated commitment by the central bank “to provide assurances that international remittances and individual foreign currency inflows received through normal banking channels are available for use when required by the owners”.

Mangudya acknowledged yesterday that this policy tilt had “not been implemented by some banks on a transparent basis that promotes confidence within the economy”.

Several banks have, for months before yesterday’s announcement, offered individual foreign currency earners limited access to hard currencies.

The mere existence of at least two currencies raises the question of the pricing of one in respect of the other — the exchange rate.

While acknowledging “the dilution effect of RTGS balances on Nostro foreign currency accounts”, Mangudya still insisted that the two currency categories held in the different accounts would have the same value.

“This is essential in order to preserve value for money for the banking public and investors during the transition to a more market based foreign currency allocation system that shall be implemented once the economic fundamentals are appropriate to do so,” Mangudya said.

The reality is, of course, considerably different.

Ahead of Mangudya’s policy statement, the RTGS ‘currency’ was trading at a 120% discount to the US dollar. There was no let up after the policy statement, with early indications showing a further weakening of the local currency.

Mangudya and his boss, Finance Minister Mthuli Ncube, did not seem particularly concerned about the exchange rate on the parallel market. Ncube, instead, expanded a tax on electronic transactions to ensure government taps into the foreign currency trade as well as the largely untaxed informal sector.

The tax, introduced in January 2003 at 5 cents per transaction, is now set at 2 cents per dollar and is to be levied on all electronic transactions as Ncube seeks to expand the tax base and capture transactions in the informal sector. Government believes the tax tweak will be kinder to low income earners.- NewZWire

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