US$ denominated saving bonds and hiked lending rate for Zimbabwe

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Southern Times Writer

Harare - The Reserve Bank of Zimbabwe hiked its overnight lending rate to 70 percent on September 13, 2019, from 50 percent to curb rising inflation and support the local currency. The bank also said it was introducing dollar-denominated savings bonds to try to stimulate greater saving.

These measures are meant to restore confidence and macro-economic stability, strengthen economic fundamentals and create a conducive business environment.

“In order to promote a savings culture and to provide reasonable return on FCA Nostro account deposits and US$ cash held by individuals and firms, the bank is with immediate effect introducing USS-denominated savings bonds alongside the current ZWL$ denominated savings bonds, with the following features: (i) interest rate of 7.5 percent  per year; (ii) Minimum tenure of one year; (iii) tax exemption, in line with government policy; (iv) liquid asset status; (v) tradable; and (vi) acceptable as collateral for overnight accommodation by the RBZ.

“The interest rate on the ZWL$ savings bonds shall soon be reviewed to take account of developments on the domestic Treasury Bill market and to motivate banks to provide meaningful return on local currency deposits,” stated the bank.

However, the story is different in other countries within the region. The Central Bank of Botswana slashed its benchmark interest rate by 25 bps to 4.75 percent on August 29th, 2019. According to Trading Economics, this was the first rate cut since October 2017, to the lowest level since at least 2006, in a bid to foster growth. Policymakers said that inflation outlook remains positive amid subdued domestic demand pressures and modest rise in foreign prices.

The Bank of Namibia also slashed its benchmark repo rate by 25 bps to 6.50 percent on August 14th, 2019, to support the domestic economy and maintain the one-to-one link between the Namibian dollar and the South African rand. This is the first cut since August 2017 and comes after the South African Reserve Bank's decision to cut its own interest rate by 25 basis points to 6.50percent in July.

Policymakers noted that economic activity remained subdued in the first six months of the year, as reflected in mining, construction, electricity, and wholesale and retail trade. Other sectors such as manufacturing, transport and communication improved, but the economy is projected to remain weak in 2019.

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