Kudzanai Gerede Business Reporter
The extension of the Reserve Bank of Zimbabwe bond notes export incentive scheme by US$300 million under the standby liquidity support from Afrexim bank starting from September the first has raised hope that the intervention will liquefy the economy and recapitalise depressed export production.
In his mid-term monetary policy statement last week, the Reserve Bank of Zimbabwe Governor, Dr John Mangudya, noted the need to recoup the country’s depleted nostro accounts while accentuating the significance of foreign exchange generation amid the current cash challenges.
The development has been largely viewed as a timely recourse following the exhaustion of the initial US$200 million bond notes in the market. Much of the bond notes have however, been absorbed into the parallel market and are being traded at a premium creating a massive cash shortage in the formal market.
This has created monetary imbalances within the economy, with cash to deposit ratio sliding to below 5 percent against international best practice of 15-20 percent.
Economic analyst Pepukai Chivore told Post Business that under the current context of insufficient foreign currency as a result of weak exports, the bond notes extension scheme would improve cash availability on the market while it assumed the role of the major currency in the multi-currency system.
“The US$300 million facility will increase the ration of bond notes to US dollars in circulation. Bond notes will then no longer be surrogate currency but a new de facto Zimbabwe dollar with a value at par with the US dollar,” he said.
Against the general assumption that the extension of the bond notes into the market would trigger inflation, Chivore said the drip-feed system as enunciated by the Central Bank would subdue inflation and this would be further calmed by good agricultural harvests that would also restrain food inflation.
Observers say the Central Bank should be seized with building confidence in the banking sector to encourage more bank deposits as the cornerstone to keeping the bond notes on the formal market.
This will also require monetary authorities to put in place interventions to curtail the three tier pricing system on Real Time Gross Settlements (RTGS), US Dollars and Bond notes transactions.
“As long as the Central Bank has not addressed the main culprits that continue to curtail market liquidity which are fiscal indiscipline, cash hoarding and externalisation, flooding the market with bond notes will be lethal,” said Chivore.