Expect resolute 2016 Monetary Policy

MangudyaHARARE – The upcoming Monetary Policy announcement will likely focus on tightening money supply measures, with Reserve Bank of Zimbabwe governor Dr John Mangudya lamenting poor retention of cash in the economy.

The RBZ governor told a Herald Business/Confederation of Zimbabwe Industries Symposium this morning that one of the key issues undermining the performance of the local economy was poor utilisation of money.

“In terms of the utilisation of (monetary) resources in Zimbabwe, we need to increase transparency and accountability for those resources so that we have a positive outlook for the economy

“We are talking about efficient use of the United States dollar, and from the office where I am sitting I am not seeing it. Discipline is the missing link in this economy,” said Dr Mangudya.

He said in respect of the country’s diamond exports, the financial wherewithal from the export of diamonds had not been felt by the economy.

“We are exporting both the product (diamonds) and the currency.”

Dr Mangudya said money should be utilised in production rather than consumption.

Basic economic theory entails that businesses respond to increased money supply by focusing on improving production, and as such the spread of business activity increases the demand for labor and raises the demand for capital goods.

On the contrary when money supply declines economic activity also declines, which causes deflation.

The RBZ governor said if Zimbabwe’s rate of money retention does not improve, then it automatically minimizes the positive consequences of the country’s current re-engagement efforts with the bi-lateral creditors.

He said if the country’s rate of retention remains at nil, it would basically be useless to have the country’s borrowing capacities post Lima

“If our rate of retention is zero and we bring in $10 billion into the economy, it simply goes out. So we need to put in place policies that will ensure that we retain money in Zimbabwe, and we need to change usage of money from consumption to production then Zimbabwe’s economic outlook will be positive

“And these are some of the issues as we shall present our Monetary Policy statement later this month that we will look at,” said Dr Mangudya.

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