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The commitment by the Reserve Bank to pursue optimal monetary policies through prudent reserve money targeting and strategic interventions in the foreign exchange market will stabilise the exchange rate, which is a key driver of price dynamics in a multi-currency environment. As such, the inflation trajectory is expected to continue on a downward trend, with month-on-month inflation projected to average below 3% in 2025, consistent with exchange rate stability.
The Monetary Policy Statement comes when the economy is experiencing relative price and currency stability after introducing a structured currency, the Zimbabwe Gold (ZiG) on the 5th of April 2024. Accordingly, this Statement evaluates the performance and effectiveness of the monetary policy measures outlined in the April 2024 Monetary Policy Statement. Accordingly, this Mid-term Monetary Review Statement aims to consolidate the currency stability to sustain low inflation and a stable exchange rate, while addressing potential risks to macroeconomic stability.
The Reserve Bank is introducing a structured currency which is generally defined as a currency that is pegged to a specific exchange rate or currency basket and backed by a bundle of foreign exchange assets (potentially including gold). This means that a Central Bank can only issue domestic notes and coins when fully backed by a foreign “reserve” currency or foreign exchange assets and that the currency is fully convertible into the reserve currency on demand. The structured currency being introduced is anchored by a composite basket of foreign currency and precious metals (mainly gold) held as reserves for this purpose by the Reserve Bank.
The policy measures put in place by the Bank and Government have re-oriented the country onto the right track to macroeconomic stability. As such, the Bank is staying the course to price stability by maintaining the current tight monetary policy stance during the six months to December 2023, with fine tuning on open market operations to ensure attainment of the full benefits of monetary and fiscal consolidation to sustainably anchor inflation and exchange expectations.
The Bank expects the domestic economic outlook to remain positive notwithstanding uncertainties around the global economic outlook. Against this backdrop, the Bank shall remain committed to staying on course of a tight monetary policy stance aligned to the inflation path to balance the need to protect price stability and the country’s growth potential.
The Bank strongly believes that the current tight monetary policy stance complemented by the strong will by Government to putting in place measures that deal with factors that destabilise the foreign exchange market will result in exchange rate and price stability in the near and short-term.
The conservative monetary targeting framework currently being pursued by the Bank has seen quarterly growth in reserve money being successfully contained within desired targets throughout 2021.
This Monetary Policy Statement (the Statement) comes at a time when Government has ably shown steadfast commitment to sustaining the economic reform momentum. Despite the difficulties caused by the Covid19 pandemic, the economy is on the rebound.
Improved production and productivity will be key in sustaining the macroeconomic trajectory of growing the economy by 7.4% in 2021 and above 5% thereafter as envisaged in the NDS1. In this regard, the Bank affirms its commitment to continue ensuring a hawkish monetary policy stance, as well as sound financial conditions through its conservative monetary targeting framework.
This Monetary Policy Statement outlines the monetary policy stance being pursued by the Bank in the second half of 2020.
