Monetary Policy Statement Explained- Mangudya

By Gift Mashoko

RBZ Governor, Dr John Mangudya has this morning expounded on the Monetary Policy Statement which he delivered on Wednesday, articulating on the bond notes and the foreign currency issues as well as exchange rate.

Speaking at a Daily News Breakfast meeting, Dr Mangudya highlighted on why the bond note came into effect.

“Bond Notes came into effect to formalise the export incentive. The 5% incentive scheme was a shadow exchange rate. It went on well when inflation was below 5%. When the inflation went beyond 20%, all hell broke loose,” he said.

Dr Mangudya admitted that rating the United States dollar on 1:1 with the bond was wrong and would be working on rectifying that.

“I am guilty as charged for taking exporters' money at 1:1, when prices had risen by 3 or 4 times was unfair. We will reward exporters by giving them fair value for the portion of their foreign currency which we retain.

“For forex dealers in the streets, they now have an opportunity to open formal bureau de changes and trade formally. The rate will open at $1: 2.50 (RTGS) as per agreement with foreign currency dealers in the Banks,” he said.

Dr Mangudya said that the exchange rate would be published soon ensuring transparency in the market and that banks will give RBZ a schedule for customer’s allocated foreign currency.

“The RBZ will publish all average exchange rates in the market in all daily newspapers to ensure transparency in the market. Banks will give the RBZ the schedule of all customers who have been allocated foreign currency,” he said.

Asked on what happens to Treasury Bill holders that bought the bills at 1:1 prior to bond notes or volatility, Dr Mangudya responded that the Treasury Bills are electronic dollars and are therefore treated as such. He said that they would be settled as electronic dollars (RTGS Dollar).

Dr Mangudya admitted that he only realised that 1:1 does not work and was being a cost to exporters in October 2018 when inflation set in.

Dr Mangudya highlighted that the RBZ would open a window as a Lender of last resort so as to protect market players. He said that after setting up the Lender of last resort window, they would come up with a Bank Rate (Repo Rate) which will guide interest rates in the market. Therefore, there is need to strike a good balance for the market to continue to grow and avoid treading into a recession.

Dr Mangudya also said the Monetary Policy Statement gave clarity on the exchange rate and pricing of goods.