Reserve Bank of Zimbabwe (RBZ) Governor John Mangudya said that the suspension of bank lending that was announced a week ago will be reviewed this week. Said Mangudya:
The suspension will be reviewed next week (this week).
On Saturday, 7 May, President Emmerson Mnangagwa announced the suspension of bank lending as part of measures to stabilise the Zimbabwe dollar that was in free fall.
Meanwhile, Mangudya said the move was necessary to find out what was causing the Zimbabwe dollar to lose value so rapidly and the reason behind rising inflation. Said Mangudya:
What we have found out is what I have told you, that other corporates were heavily borrowing from the market or from the banks for the purposes of using that money to purchase their products and manipulate the exchange rate, which is called currency attack.
They attack the currency so that it depreciates, then they pay back their loans. In fact, they make a profit from borrowing.
Because the adjustment in the exchange rate is higher than the interest the bank will get. This is why the interest rates route was never going to work for these guys.
Because even if you put the rate at 80 per cent, the rate will depreciate much faster even if you put it at 100 per cent or 150 per cent.
As I read from Professor (Steve) Hanke, who said you need to increase the rate to 166 per cent, even if you put it at 166 per cent, they will send the parallel market rate to much higher than the value of the interest.
By so doing, you continue to chase your tail because they are moving the target. Because their job is to attack the currency.
Mangudya revealed that the PBZ will investigate companies that were offered contracts by the Government to undertake various infrastructure projects such as roads and dams to see if they are not the ones dumping huge sums of Zimbabwe dollars on the black market. He said:
That is why I have said let’s have a ceasefire for now in terms of lending, then we see if they (the contractors) are the ones (moving the rate).
Let’s also investigate them to see whether their invoices are correct or whether they are fair, or whether they are pricing using the willing-buyer, willing-seller rate.
In any case, we also understand that the Government is also paying part of those contractors in foreign currency so that the appetite for foreign currency is reduced because they will be having foreign currency from Government to buy their bitumen, spares, tools and fuel that they require for the roads.
So it means the balance that they get in local currency they should be able to keep it in this country.
But, if they want to preserve value by going to sell it again stoking inflation, then they are the wrong people who are working for us.