‘Unusual times require unusual monetary policies’

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Windhoek - The COMESA Monetary Institute says central banks must think outside the box to steer economies through the COVID-19 pandemic.

Advocating for the unconventional monetary policy tools (UMPTs), director of the institute Ibrahim Zaidy said most central banks had already started on this path, and advised a raft of other measures to compliment these efforts.

In a report on the issue, Zaidy said governments should provide funding to market segments where liquidity had dried up; and renegotiate external debt payment plans, among other measures.

"Central Banks should consider lowering the interest rate to increase loans to businesses (and decrease their cost) and provide commercial banks with more liquidity to support business activities,” Zaidy said.

He added that temporary use of capital flow management measures could help prevent free fall of exchange rates.

Other options were restrictions on resident investments and transfers abroad, and caps and other limitations on non-resident transfers abroad.

Zaidy said governments should also consider stimulus packages to productive sectors and taxpayers, waiver of some taxes and support for SMEs.

He went on: “The possible tool to consider is by providing funding for lending schemes whereby central banks provide collatarised long-term funding to banks to aid monetary transmission through the banking system and support provision of new credit to bridge financing needs of specific sectors.”

In all cases, Zaidy said, due prior consideration should be given to 

potential financial risks to central banks’ balance sheets, the operational readiness of such tools, potential distortions and spillovers, and the importance of transparency and accountability.

He also said countries should approach the recommended measures as temporary tools for a crisis situation.

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