The official exchange rate has been fixed at $25 to US$1 for the duration of the Covid-19 emergency by the Reserve Bank of Zimbabwe (RBZ) to stabilise prices while holders of free funds now have an option to pay for goods and services in foreign currency.
Regulations banning compulsory forex payments, however, remain in force.
To provide further relief to the public, the RBZ agreed with banks to suspend increases in charges for all electronic payments during the emergency and was now engaging mobile network providers to reduce their charges to promote electronic banking.
At the same time, policy changes and additions have been approved to help the business sectors weather the global economic turbulence that the pandemic has brought, similar to those in other countries.
RBZ Governor Dr John Mangudya said in a statement yesterday that the measures were part of Government interventions, in line with President Mnangagwa’s call on Monday for measures to mitigate the impact of Covid-19 on Zimbabwe.
Dr Mangudya said the bank had made available an option to use free funds to pay for goods and services chargeable in local currency, taking into account limited forex resources negatively affecting balance of payments.
“The dispensation to use free funds will not only make payment for goods and services easier, but will also promote social distancing as banks will be able to provide digital financial services to their customers that include producers of gold, tobacco and cotton and recipients of diaspora remittances.
“Digital financial transactions will go a long way in enhancing confidence in the economy and assisting banks to play a critical role as systemic stabilisers of the economy during these unprecedented times,” he said.
The measures appear to be part of RBZ efforts to tap the large pool of free funds held outside the banking system to bring this money into the formal system.
Dr Mangudya said Government had suspended the managed floating exchange rate system, which was introduced this month, for greater certainty in the pricing of goods and services.
“In its place, the bank has, with immediate effect, adopted a fixed exchange rate system at the current interbank level of $25 to the US dollar. This measure will be reviewed when markets stabilise from the effects of Covid-19,” Dr Mangudya said.
Going into the business support, and in line with similar swift responses to Covid-19 by global economies, the bank adopted measures to boost the domestic economy by more than doubling the $1 billion productive sector facility, reducing statutory reserves that banks must hold with the central bank and cutting the bank’s policy rate to promote lending to productive sectors of the economy by banks.
These measures around the world are designed to ensure that the global pandemic does not trigger a global depression
According to the International Monetary Fund (IMF), the Covid-19 pandemic will cause a global recession this year, which could be worse than the one triggered by the global financial crisis of 2008-2009, but world economic output should recover in 2021. Like the rest of the world, Zimbabwe needed some cushioning.
The bank also increased the Medium Term Bank Accommodation Facility for supporting the productive sectors by an additional $1 billion to $2,5 billion, with the funding aimed at financing the 2020 winter wheat farming.
RBZ also reduced the statutory reserve ratio from 5 to 4,5 percent to free up some funds to the banks to enhance their lending activities. To lower the cost of bank loans, the bank cut its bank policy rate from 30 to 25 percent.
Further, Dr Mangudya said the bank was responding to the needs of Zimbabwe’s economy through the issuance of Open Market Operations Corporate Bills to enhance the monetary targeting framework necessary to support the exchange rate and to stabilise prices in the economy.
“Whilst the legal instrument to bring the above measures into effect is being finalised, the bank urges the transacting public and producers of gold, tobacco and cotton to fully embrace electronic payment platforms as we fight the spread of COVID-19,” Dr Mangudya said.