RBZ's Monetary Policies Hurting Business And Credit Flow
Economists argue that the Reserve Bank of Zimbabwe’s (RBZ) tightened monetary policies, designed to stabilise the ZiG currency and control inflation, have unintentionally disrupted business operations, constrained access to credit, and sparked turmoil in capital markets.
The ongoing cash crunch has also cast a shadow over the upcoming festive season, as both businesses and consumers face financial uncertainty.
In October, the RBZ introduced liquidity-tightening measures in response to the sharp depreciation of the ZiG in September.
As part of these measures, the central bank adjusted the official exchange rate from ZWG14:US$1 to ZWG24:US$1. By Thursday, December 5, the ZiG was trading at ZWG25.6:US$1.
To further stabilize the currency, the RBZ reduced the money supply, a move that has left many businesses struggling with limited cash flow and operational challenges.
In an interview with Business Times, Christopher Mugaga, who is the CEO of the Zimbabwe National Chamber of Commerce (ZNCC), said:
The scarcity of the ZiG is evident, making credit access increasingly difficult for businesses. While controlling liquidity can stabilize the exchange rate, this approach without a corresponding increase in production risks further economic instability.
If liquidity is not linked to production, inflationary pressures and a loss of confidence in the local currency are inevitable. Increasing output is critical to absorbing liquidity without stoking inflation.
Economist Vince Musewe said that liquidity control must be carefully balanced to prevent stalling economic transactions and hindering growth.
Industry stakeholders have raised concerns that the current liquidity crunch is diminishing aggregate demand, lowering production levels, and threatening overall business viability.
A senior banker, speaking on condition of anonymity, said:
The liquidity squeeze has curtailed lending, leaving businesses unable to secure the funds they need.
This is particularly harmful during the festive season and for farmers who require post-drought financing.
Monetary Policy Committee member Persistence Gwanyanya said while tight liquidity conditions may support short-term stability, achieving sustainable growth requires a careful balance between maintaining stability and fostering increased economic output.
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