MACRO BULLETIN 08.20- MONETARY POLICY NUGGETS FOR THE NPO SECTOR
Posted on 24 August, 2020 at 12:08
The Monetary Policy Statement released on the 21st of August 2020 highlighted the monetary policy stance being pursued in the second half of the year. The statement also reviewed the measures implemented in the first half of the year. Special attention was also given on measures implemented to contain the impact of the COVID-19 pandemic on the price and exchange rate stability.
The Zimbabwe economy was not spared from the economic and social turbulence induced by the outbreak of the COVID-19 pandemic. The global economy was initially expected to decline by 3.9% but due to the pandemic it is now expected to decline by 4.9%. Most central banks across the world have introduced measures to balance financial stability while supporting economic recovery.
This bulletin aims at analysing the impact of key Monetary Policy issues on Non-Profit Organisations. We have identified the following key issues:
1. The foreign exchange auction system to remain in place,
2. New measures to address the cash crisis,
3. Exchange rate spread increased to 5%,
4. Mobile money operators to introduce automated system for the liquidation of funds from merchant accounts.
Dutch foreign exchange auction system
The foreign exchange auction trading system became operational from the 23rd of June 2020. The introduction of this system has resulted in price stability and has also assisted in price discovery of the market exchange rate. Resultantly, this has restrained the speculative pass-through effects of the exchange rate on the pricing of goods and services in the economy. The system has minimised the volatility in the exchange rate.
Although activity has been low due to the nation lockdown induced by COVID-19, most organisations have continued to operate during this period. Since the period when the Government instructed all suppliers to quote and display all prices in local currency, most suppliers pegged prices at the alternative exchange rate. Since the exchange rate was volatile, prices were fluctuating which also resulted in challenges for organisations to budget and prepare weekly or monthly cashflows.
However, the foreign exchange auction system curbed the rates downwards and stabilised the prices. Sustaining the auction system is therefore crucial in fostering price stability in the economy.
In order to support the foreign exchange trading system, with immediate effect going forward, the central bank now require 20% of the foreign currency receipts to be liquidated at the point of depositing in the Domestic FCAs. All the existing balances shall not be affected by this policy.
All the recipients of free funds shall be exempt from this policy, these includes individuals, embassies, non-governmental organisations, tobacco and cotton producers.
Addressing the cash challenges
Recently, the Central bank introduced higher denominations of zwl$10.00 and zwl$20.00 in the banking system to address the increasing demand for cash. Also, the cash withdrawal limits were reviewed upwards from $300.00 to $1000.00 per week to provide transactional convenience to the public
Organisations should take advantage of the relationships with their bankers to ensure they benefit for transactional convenience. Those organisations that pay allowances in local currencies need to request from their bank in advance.
Foreign Currency trading by Bureaux de Change
The central bank has liberalised the activities of the bureaux de change. It has increased the exchange rate spread from 3.5% to 5% above the auction rate.
This will result in wide options for the organisation to liquidate their funds. There’s need for organisations to do an analysis on different financial institutions in order to liquidate fund with the highest possible rate.
The central bank carried out a forensic audit to assess the integrity, compliance and efficacy of mobile money platforms and transactions. This has revealed significant weaknesses in the system. In order to correct this, the bank has implemented a number of measures. Organisations will be permitted to continue operating merchant wallets. E-value held in the wallets shall be liquidated to the merchant’s bank account.
For organisations that receive subscriptions from their members can continue using merchants for the easy of receiving payments from their members. The bank has also instructed the mobile money operators to have a system in place to ensure automatic liquidations from the merchant wallets to the merchant bank accounts
The Monetary Policy Statement reaffirmed the position that some of the measures will remain in place since we have witnessed stability in prices and exchange rate since the adoption of the foreign exchange auction system, in June 2020. In addition, the annual inflation is forecast to gradually fall to 249% by December 2020 and further to single digit levels by December 2021. NGOs can therefore continue basing their medium-term plans on the United States Dollar.