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RBZ lowers lending rates in response to COVID-19

By Staff Writer

Zimbabwe’s central bank has reduced bank rates to 15% from 25% per annum with effect from Friday this week as authorities move in to ease the cost of borrowing against the backdrop of an economic implosion triggered by COVID-19.

Zimbabwe’s economy is floundering and expects project the Gross Domestic Product to contract by double-digit figures this year. This week in Cabinet, Finance minister Mthuli Ncube promised to formulate a stimulus package to save business.

This policy measure comes following a meeting by RBZ’s Monetary Policy Committee (MPC) on April 24. The downward policy rate review by the Central Bank is however in anticipation that banks will do the same in providing affordable financial facilities to their customers.

“The MPC noted the compelling need to reinforce the Bank’s first round of economic policy responses to the COVID-19 pandemic.

“The bank policy rate will be reviewed downwards to 15% from 25% per annum with the expectation that banks will do the same to provide affordable financial facilities to their customers during these challenging times,” Mangudya said.

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He further said the interest rate applicable to Medium-Term Bank Accommodation Facility (MBA) will be reduced to 10% from the current 15% per annum with effect from tomorrow.

The MBA facility has been increased by ZW$500 million to bring it to ZW$3billion.

Mangudya said an additional ZW$2 billion will be raised from the market through money supply neutral financial instruments to augment the MBA Facility to ZW$5 billion.

He noted that banks that access the MBA facility are encouraged to on-lend at interest rates not exceeding 20%.

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“These measures will provide further impetus to the resuscitation of production in the economy,” said Mangudya.

Banking institutions have been lending mostly between 45 and 25 per cent, for individual and short-term loans, while others quoted interest rates just below the industry benchmark rate, specifically for corporate loan facilities.

The overnight accommodation rate is the interest rate at which banks lend to each other to cover overnight or daily shortfalls and serves as the industry benchmark of where banks’ lending rates in the money market should be.

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The government hiked the overnight accommodation rate from 15 to 50% and then 70 per cent in 2019 to discourage speculative borrowing and protect the value of the local currency following its floating on the interbank market for the first time since 2009.

RBZ then halved the bank rate to 35% as part of its efforts to promote lending to productive sectors.

To avoid suffocating productivity, the RBZ in January this year intervened in the market to provide nearly $1bn billion for productive sectors. Get all COVID-19 statistics for Zimbabwe from COVID-TRACKER 

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Daniel Chigundu

Daniel Chigundu is the news editor for OpenParlyZW an online platform that covers Parliament of Zimbabwe activities using social media (Twitter and Facebook). He is currently the secretary-general of the Zimbabwe Parliamentary Journalists Forum and a board member of Digital Communication Network.

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