How can Reserve Bank of Zimbabwe’s 2019 mid-term policy curb failing economy?

The Reserve Bank of Zimbabwe recently released its 2019 mid-term Monetary Policy statement in an attempt to address the country's ongoing economic crisis. The policy statement aims to tackle issues such as controlling the exchange rate, addressing inflationary pressures, and managing liquidity in the economy. However, experts believe that the policy faces significant challenges in effectively curbing Zimbabwe's economic woes. One of the key highlights of the policy statement is the emphasis on monetary targeting, which involves limiting the money supply to control inflation. In an effort to alleviate cash shortages, the central bank also introduced new notes and coins. Additionally, the policy underscores the need to increase accommodation rates by 50% to combat high inflation and speculative activities. Despite these measures, experts like Batanai Matsika, Head of Research at Morgan & Co, point out that the policy may struggle to address the fundamental issue of foreign exchange shortages. The high demand for foreign currency, especially from the government and private sector for critical imports, coupled with limited options to generate forex, raises concerns about the efficacy of the policy. Another significant challenge highlighted by Matsika is the impact of increasing interest rates to as high as 70%. Such a drastic measure could prove counterproductive as it may hinder production and economic growth, rather than stimulating it. The policy's focus on establishing a new monetary policy committee is also questioned, with experts stressing the importance of political independence and effective institutional design to tackle economic issues. Matsika further recommends the full floating of the Zimbabwe dollar to address arbitrage opportunities and enhance financial intermediation. However, concerns are raised about the potential risks and uncertainties associated with such a move, especially in the current economic environment plagued by instability and value destruction. In terms of investment opportunities, Matsika suggests that the stock market could offer viable options for investors seeking long-term prospects. Despite the market challenges and liquidity pressures, certain counters with strong fundamentals, such as exporting businesses and companies with regional exposure, present attractive investment opportunities. The discussion also delves into the finance minister's ability to navigate the economic crisis amidst political constraints. While efforts to improve government revenues through new tax measures are acknowledged, the overarching influence of politics on economic decisions remains a significant hurdle. The need for political buy-in and policy reforms to unlock foreign direct investment and address economic sanctions is emphasized as crucial for Zimbabwe's economic recovery. Overall, the interview sheds light on the complexities and challenges facing Zimbabwe's monetary policy in addressing the country's economic crisis. While efforts are being made to implement reforms and stimulate growth, the intertwined nature of political and economic factors continues to pose obstacles to sustainable recovery.