Mthuli finally appoints monetary policy committee, and it faces big confidence test

Zimbabwe currency
(REUTERS/Philimon Bulawayo)

Finance Minister Mthuli Ncube has established a nine-member monetary policy committee (MPC), as part of measures to help bring credibility to policy as the economy pushes towards its own currency. 

The MPC has been appointed almost a year after Ncube first mooted the plan under the Transitional Stabilisation Programme (TSP), a raft of policy reforms he announced soon after his appointment. 

The committee will benchmark interest rates and begin inflation targeting, Ncube has previously said. 

The MPC members are; SA-based actuary Marjorie Ngwenya, the first non-British – and the first person under age 40 – to have served as president of the UK’s Institute and Faculty of Actuaries, Kumbirai Katsande, a former president of the Confederation of Zimbabwe Industries and ex-MD at Nestlé Zimbabwe, Douglas Munatsi, former CEO of BancABC and a leading farmer, Theresa Moyo, a professor of Economics who has taught at UZ and the University of Limpopo, Eddie Cross, a former opposition MP who has both praised and criticised government – he has targeted some of his sharpest criticism at Mangudya – and Ashok Chakravarti, economics professor at UZ who also already advises Treasury. 

Also on the committee are RBZ governor John Mangudya, who will chair the MPC, and his two deputies, Jesimen Chipika and Kupikile Mlambo. 

The committee will have the tough task of restoring confidence in monetary policy, which took a heavy hit over the past year over a series of tough decisions on the economy. 

In February, RBZ abandoned the 1:1 peg on the exchange rate, allowing the local currency to partially float. Interest rates were raised to 50%. In June, Ncube abandoned the multicurrency regime, in place since 2009, controversially banning the use of foreign currency for local transactions.

One of the MPC’s big tasks now will be steering monetary policy towards the full reintroduction of a new currency, which, Ncube said last week, could be printed as early as this year.

President Emmerson Mnangagwa, at a public event in August in Harare, said Zimbabwe aimed to start printing new notes for circulation by the end of 2019. Mnangagwa said he believes a local currency will help make Zimbabwean industry more competitive.

However, the trend on the local market shows that confidence remains the greatest threat to any new currency, and the biggest job facing the MPC.

Since February, the local unit as gone from 2.5 on the US dollar to 11.6 on the formal market. The local currency is trading even lower at the black market, where rates have taken a beating in the past two weeks after a finding some stability over the last two months.

The sharp fall in the local currency’s value since February has fed inflation, last measured in June at 176% annually before Ncube suspended yearly inflation data to February, citing the need to build a new CPI base to reflect the currency switch. 

The currency measures have eroded the value of investments on the Zimbabwe Stock Exchange, now valued at around US$1.5 billion from the equivalent of US$4.75 billion in June.