RBZ’s Policy Strategy Criticized by Banking Executive Amid Economic Strains

A leading banking executive has raised concerns over the Reserve Bank of Zimbabwe’s (RBZ) restrictive policy stance, asserting that these measures favor exchange rate stability at the expense of productive lending and economic expansion.

In September 2024, the RBZ adjusted Zimbabwe’s currency, ZWG, from ZWG13.80 to ZWG25.28, narrowing the gap with the parallel market rate, which lingered around ZWG35. This move aimed to bolster the currency’s acceptability while addressing exchange rate discrepancies.

Simultaneously, statutory reserve requirements for deposits soared from 5% to 15% for both local and foreign currencies. The bank’s tight policy approach, highlighted in the Monetary Policy Statement (MPS), has seen Zimbabwe Gold appreciate 2.4% to 27.9986 per dollar, marking a first advance since mid-October—a shift that central bank officials credit to their steadfast monetary policies.

However, an anonymous banking executive in Bulawayo recently criticized this approach, deeming it overly restrictive. “The RBZ’s focus on exchange rate stability disregards the reality of our daily operations, making it challenging to meet our clients’ needs,” he stated.

According to the executive, the raised statutory reserves diminish banks’ capital for lending, as more funds are tied up with the central bank, limiting resources available for everyday banking activities and productive lending.

In recent statements, the RBZ revealed that local businesses failed to fully utilize the US$25 million offered on the interbank market. “It’s unrealistic to expect banks to access such amounts after already diverting a significant portion of our deposits to the central bank,” the executive explained.

The restrictive policies, he argued, effectively “deprive banks of liquidity” by drawing in funds through increased reserve requirements, then expecting financial institutions to actively participate in available forex allocations. This cycle, he contended, creates an unsustainable balancing act for banks.

Due to these RBZ measures, numerous banks are now less capable of extending substantial loans to the productive sector. This, according to the executive, amplifies risks and may stunt the long-term growth prospects of the economy.

“While exchange rate stability is crucial, it’s not the sole objective we should prioritize,” he said. The banking executive urged monetary authorities to consider the broader economic impact of these policies, warning of potential setbacks if lending restrictions continue.

Amid concerns from industry professionals, the RBZ’s strategy remains focused on maintaining exchange rate stability, despite challenges faced by banks operating under its restrictive financial framework.

The Zim Bulletin