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Sustaining Price Stability And Economic Resilience
By
JOHN PANONETSA MANGUDYA
GOVERNOR
2 FEBRUARY 2023
2023 MONETARY POLICY STATEMENT

TABLE OF CONTENTS
SECTION FOUR: BANKING SECTOR AND NATIONAL PAYMENTS


TABLE OF FIGURES
Figure 26: Digital Payment Systems Annual Values and Volumes for 2015 to

Figure 29: Distribution of Applications to Regulatory Sandbox as of 31
Figure 30: International Commodity Price Indices Development and outlook:

LIST OF TABLES
Table 5: Proportions of Domestic Expenditure in Foreign Currency and Local
Table 9: DTMFI Sub-Sector Capitalization (Minimum Requirement US$5m) .. 55

SECTION ONE
INTRODUCTION

1.
This Monetary Policy Statement (MPS) is issued in terms of Section 46 of
the Reserve Bank of Zimbabwe Act [Chapter 22:15] and details evaluation
of the current monetary policies of the Bank and outlines the new policy
measures to be pursued by the Bank in the next 6 months with a view to
achieving price and financial sector stability.

2.
The MPS comes at a time when the global economy is projected to record a
slowdown in economic growth as a result of tight monetary conditions as
central banks fight inflation, declining investment, lagged effects of the
Covid-19 pandemic and global supply chains disruptions and rising
commodity prices emanating from the Russia-Ukraine conflict. In its
January 2023 World Economic Outlook update, the International Monetary
Fund (IMF) projects that global Gross Domestic Product (GDP) growth in
2023 will slow to 2.9 percent, compared to a 3.4 percent 2022. The adverse
global developments are likely to have spill-over effects on the domestic
economy through trade, imported inflation and financial linkages.

3.
On the domestic front, the current tight monetary policy stance has allowed
the Bank to anchor inflation and exchange rate expectations through
measures designed to sustain price and exchange rate stability. The
monetary policy measures implemented in 2022 also provided some
resilience in the economy against both domestic and global shocks and
headwinds. This has seen inflation trending down, especially in the last
quarter of 2022 as business confidence, industry activity and exports
improved significantly. More importantly, foreign currency receipts reached

an all-time high of US$11.6 billion in 2022 against total foreign currency
payments of US$8.6 billion, thus, significantly contributing to foreign
currency liquidity in the economy.

4.
The gold coins introduced by the Bank in July 2022 also significantly
contributed to exchange rate and price stability. The coins have proved to be
an effective open market instrument for mopping up excess liquidity in the
economy and a retail investment product for preserving value for investable
funds. The combination of tight monetary policy through high policy rates
and the liquidity-mopping effects of the gold coins and the foreign exchange
auction system played a pivotal role in achieving price and exchange rate
stability in the economy.

5.
While the current high-interest rates have managed to stabilise prices and
the exchange rate by anchoring expectations and curbing speculative
transactions, they need to be aligned with the declining inflation path
experienced since the last quarter of 2022. In essence, the current highinterest rates may present a risk of discouraging private sector borrowing in
local currency and contracting economic growth in the medium to long term,
especially in the wake of the anticipated slowdown in global economic
activity.

6.
These developments underscore the need to review monetary policy in sync
with inflation to balance macroeconomic stability and boost industrial
activity and economic growth. The Bank will thus stay the course of the
current monetary policy stance to consolidate and sustain the current
stability, resilience and growth trajectory gains, while simultaneously
strengthening financial intermediation and curbing speculative borrowing.

7.
Against this background, this Policy Statement, outlines measures required
to ensure that the monetary policy stance remains tight enough to sustain the
current stability, while preserving the country’s growth prospects and an
optimal mix of the dual currency basket. The measures are specifically
aimed at ensuring that inflation and exchange rate pressures are firmly under
control, whilst economic activity remains robust.

8.
The rest of the Statement is organised as follows: Section two evaluates the
previous monetary policy measures; Section three highlights the recent
economic developments; Section four provides an insight of financial sector
developments; Section five highlights the external sector developments;
Section six details the new monetary policy measures; Section seven
outlines the inflation outlook and provides forward guidance on interest rates
and Section eight concludes the Monetary Policy Statement.

SECTION TWO
ASSESSMENT OF PREVIOUS MONETARY POLICY MEASURES

9.
The monetary policy measures implemented by the Bank since the issuance
of the Mid-Term Monetary Policy Statement in July 2022 have proved to be
effective. Inflationary pressures significantly dissipated leading to general
stability in prices and the exchange rate. Notably, month-on-month inflation,
which reached a peak of 30.7% in June 2022 decelerated to less than 2.5%
by end of 2022. The upward trajectory of annual inflation in 2022 has since
reversed since September 2022, although it remains high largely due to the
base year effect. The exchange rate has to a large extent stabilised, and the
parallel market premium fell to less than 20% by the end of 2022.

Interest Rate Policy
10. The Bank has been maintaining a tight policy stance since July 2022 with
the Bank policy rate pegged at 200% to contain speculative borrowing. The
review was also done to ensure positive real rates in line with expected
inflation as shown in Figure 1.

Figure 1: Inflation and Interest Rate Trends in 2022


11. Figure 1 shows the interest rate trends versus the expected inflation trend
that was obtained in June 2022 when the decision to increase the interest
rates was taken. By end of May 2022, expected inflation was above 200%
compared to the Bank policy rate of 80%, thus underlining the need for an
immediate review.

12. The upward review in interest rates has resulted in a reduction in speculative
borrowing, which saw the month-on-month growth in credit to the private
sector declining from 33.28% in May 2022 to a negative 9% in October
2022, before recovering to 9.96% in December 2022.


Jan-22
Feb-22
Mar-22
Apr-22
May-22
Jun-22
Jul-22
Aug-22
Sep-22
Oct-22
Nov-22
Dec-22
Jan-23
Expected Inflation
Implied policy rate
Policy Rate
Need for
downward
interest
rate
review
Need for
upward
interest rate
review

Figure 2: Month-on-Month Growth in Credit to Private Sector (%)

Source: RBZ, 2023

13. The unintended consequence of high interest rates has been the shift by bona
fide borrowers from Zimbabwean dollar-denominated loans to foreign
currency loans, resulting in the banks’ loan book being dominated by foreign
currency loans. The proportion of foreign currency-denominated loans
increased from about 37.0% in December 2021 to 64.2% in December 2022.

14. In this context, the need to synchronise monetary policy with inflation is
critical to preserving stability and the country’s potential output growth. The
synchronization is also important to maintain the optimal mix of currencies
in the dual currency basket and avoid arbitraging between the currencies in
the dual currency basket.


-20
-10

Medium-Term Bank Accommodation (MBA) Facility
15. The productive sectors continued to benefit from the Medium-term Bank
Accommodation (MBA) facility ensuring that economic growth remains
robust even under tight monetary conditions. As such, the MBA window
remains necessary to continue stimulating the critical productive sectors of
the economy especially with fears of a global recession intensifying.

16. In this regard, a cumulative amount of ZW$14 billion was disbursed while
the outstanding balance was ZW$8 billion as at 30 December 2022. The
interest rate of 100% set in June 2022 has become the rate upon which most
productive lending facilities by banks are benchmarked.

Micro, Small and Medium Enterprises (MSMEs) Facility
17. The intervention by the Bank to assist the MSME sector following
challenges that emanated from the Covid-19 pandemic managed to keep
some small businesses afloat. Cumulative disbursements under the facility
amounted to ZW$1.7 billion at the end of 2022.

Open Market Operations Instruments
18. In pursuit of the tight monetary policy stance, daily excess balances of banks
remained at ZW$100.0 million during the second half of the year 2022 with
any excess liquidity mopped up through the issuance of Non-Negotiable
Certificates of Deposit (NNCDs).

19. The outstanding level of NNCDs as at 30 December 2022 stood at ZW$231
billion. The increased levels of NNCDs partly reflect the low lending

activities of banks following the increase in interest rates which saw the
Bank policy rate raised to 200% in June 2022.

20. To further manage liquidity injections arising from foreign exchange
structures, the Bank introduced RBZ Collateral Bills with tenor matching
the maturity of the structure.

Mosi-oa-Tunya Gold Coins
21. The Bank introduced gold coins in July 2022 as both an alternative retail
investment product for value preservation in the dual currency system and a
liquidity mopping instrument over and above the foreign exchange auction
system. The gold coins have been well received with 25 188 coins valued at
ZW$20 billion having been sold as at 13 January 2023. The bulk of gold
coins, 84% were bought by corporates while purchases by individuals
accounted for 16%.

22. The gold coins have a vesting period of 180 days after which the Bank can
buy them back from the investors. Table 3 shows the gold coins sales as at
13 January 2023.

Table 1: Gold Coins Sales-as at 13 Jan 2023
Details
Cumulative Sales
One Oz Gold Coin
15,526
1⁄2 Oz Gold Coins

1⁄4 Oz Gold Coin

1/10 Oz Gold Coin

Total
25,188
23. To cater for those with lower savings, the Bank introduced smaller
denominations in November 2022. As at 13 January 2023, the smaller
denominations accounted for 38% of all sales. The Bank will continue to
avail gold coins on a demand driven basis as it seeks to promote a savings
culture and provide alternative investment instruments to the public in the
dual currency system.

Statutory Reserves
24. The levying of statutory reserves on foreign currency-denominated deposits,
which came into effect on 1 September 2022, saw a significant build-up in
reserve money. Since then, the foreign currency component of statutory
reserves has continued to escalate due to the impact of exchange rate
depreciation. As at 30 December 2022, foreign currency statutory reserve
balances stood at US$70 million, ZAR 45 million, BWP 0.3 million and
Euro 0.2 million.

25. The increase in statutory reserves, which now constitute more than 90% of
reserve money, signifies further tightening of monetary policy to the extent
that the reserves are locked up at the Bank and are not available for onlending by banking institutions. Figure 3 shows the composition of statutory
reserves.

Figure 3: Components of Reserve Money (ZW$ Billion)


Liberalisation of the Foreign Exchange Market


26. The further liberalization of the foreign exchange market through the
introduction of the willing-buyer willing-seller (WBWS) interbank market
for foreign exchange has gone a long way to assist in price discovery of the
equilibrium exchange rate and to augment the foreign exchange auction
system.

27. The liberalisation of the foreign exchange market saw the parallel market
exchange rate premium declining to less than 20%, thus enhancing the scope
for convergence of the official and the parallel market exchange rate as
shown in Figure 4.

Jun 22
Jul-22
Aug-22
Sep-22
Oct-22
Nov-22
Dec-22
Requred Reserves FCA
Required Reserves ZWL
Currency Issued
RTGS Balances

Figure 4: Exchange Rate Movements

Source: RBZ, 2023

Foreign Exchange Auction System
28. The foreign exchange auction system remained a key source of foreign
currency for the economy, fostering stability in both the foreign exchange
and goods markets. The foreign exchange market was generally stable
during the second half of 2022, as reflected by stability in the goods market.

29. In 2022, a total amount of US$1.1 billion was allotted on the foreign
exchange auction, representing 91% of the total bids submitted. Since the
introduction of the auction system, cumulative allotments amounted to
US$3.7 billion as at 31 December 2022. The share of the MSMEs sector
continued to increase from 17% during the first half of 2022 to 22% in the
second half of 2022.

30. The tightening of monetary policy and the introduction of the WBWS have
seen the number of bids received on the auction declining from an average
of 1,450 to around 250 during the second half of 2022. Similarly, the value


31-Aug-21
19-Sep-21
8-Oct-21
27-Oct-21
15-Nov-21
4-Dec-21
23-Dec-21
11-Jan-22
30-Jan-22
18-Feb-22
9-Mar-22
28-Mar-22
16-Apr-22
5-May-22
24-May-22
12-Jun-22
1-Jul-22
20-Jul-22
8-Aug-22
27-Aug-22
15-Sep-22
4-Oct-22
23-Oct-22
11-Nov-22
30-Nov-22
19-Dec-22
PREMIUM (%)
AUCTION RATE
PARALLEL RATE

of bids declined from weekly averages of around US$35 million during the
first quarter of 2022 to US$12 million in the last quarter. Table 1 shows the
details of the auction allocations as at 13 January 2023.

Table 2: Foreign Exchange Auctions Data as of 13 January 2023
Date
FX market
Week
The
highest
Highest
bid
(HB)
Weighted
Auction
Rate
(AR)
US$ Total Bids
US$ Allotted
2020-21 Total


2,676,943,485.46
2,596,380,812.95
Jan-Mar 2022


420,796,325.51
402,475,532.75
April-June 2022


404,340,175.17
338,225,073.84
July-Sept 2022


254,226,897.02
239,249,287.62
Oct-Dec 2022


141,509,782.29
134,204,276.30
2022 Total


1,220,873,179.99
1,114,154,170.51
10-Jan-23
FX125/2023

10-Jan-23
SMEFX119/2023

2023 TOTAL


14,393,551.12
11,056,183.25
GRAND TOTAL
3,912,210,216.57
3,721,591,166.71

Clearance of Foreign Exchange Auction Backlog
31. To enhance confidence in the foreign exchange market and meet the
requirements of users of foreign exchange, the Bank cleared all allotment
backlogs and is now current with allotments. Going forward, the Bank will
ensure that allotted funds are settled within 14 days from the date of the
auction as per the Foreign Exchange Auction Rules.

Foreign Exchange Inflows
32. The measures being implemented by the Bank have also created a conducive
environment for foreign currency generation in the economy as reflected by
a continued upward trajectory in foreign currency receipts. Total foreign
currency receipts for the period January to 31 December 2022 amounted to
US$11.6 billion million compared to US$9.9 billion received during the
same period in 2021, representing a 17.3% increase. This speaks to the
strong and encouraging growth in the level of receipts during the year, which
under normal circumstances should be supportive of stability of the
exchange rate. Figure 5 shows the sustained increase in foreign currency
receipts since 2019.

Figure 5: Annual Foreign Currency Inflows Trend (US$ Millions)

Source: RBZ, 2022


Total Foreign Currency

Foreign Exchange Mobilisation
33. The Bank mobilized US$800 million (including Letters of Credit (LCs) from
local, regional and international partners to support the foreign exchange
auction system as well as to meet the country’s balance of payments
requirements in 2022.

34. The issuances of LCs under the African Export-Import Bank (Afreximbank)
US$150 Million Facility, as well as banks’ own facilities continued to
support the balance of payments position of the country as they provided
critical foreign currency liquidity in the economy. LCs worth about US$198
million were issued under both the Afreximbank Facility and banks’ own
facilities.

35. The revolving Afreximbank LC Facility was revised to a limit of US$50
million in December 2022. The Bank is working with Afreximbank to
operationalise the revised facility and ensure that participating banks start
issuances of the LCs in support of production, manufacture or acquisition of
raw materials, equipment, fertilisers and agrochemicals during the first
quarter of 2023.

Performance of Bureaux de Change
36. Bureaux de Change continue to play a critical role in ensuring that foreign
exchange for small transactions is readily availability. As from January to
December 2022, a cumulative total of US$40 million was purchased through
bureaux de change and foreign currency sales for various payments
amounting to US$29.8 million. Table 2 shows the breakdown of bureau de
change sales in 2022.

Table 3: Bureau de Change Sales – January to December 2022
DESCRIPTION
AMOUNT (US$)
% CONTRIBUTION
DOMESTIC UTILIZATION
17,922,709
60%
PERSONAL TRAVEL ALLOWANCE
7,509,782
25%
INVENTORY
1,875,760
6%
EDUCATION
673,202
2%
SUBSCRIPTIONS
479,389
2%
BUSINESS TRAVEL ALLOWANCE
458,589
2%
CHILD UPKEEP AND MAINTENANCE
232,143
1%
LIQUIDATION
187,581
1%
SPARES AND MACHINERY
133,413
0%
AIRFARES
115,956
0%
MEDICAL
83,390
0%
RBZ SALE
73,544
0%
RAW MATERIALS
52,110
0%
SOFTWARE FEES
11,240
0%
LICENCE FEES
3,270
0%
PROFESSIONAL/ TECHNICAL
1,750
0%
CROSSBORDER

0%
CONFERENCE FEES

0%
PENSION

0%
TOTAL
29,814,768
100%
Source: RBZ, 2022


Central Bank Digital Currency (CBDC) Project
37. The Bank’s CBDC Project continued to progress steadily in line with the
envisaged CBDC Road Map. In this regard, in November 2022, the Bank
rolled out a consumer survey that intends to solicit opinions on the design
and nature of the CBDC and its overall acceptance/acceptability by
stakeholders.

38. The survey is still open and the public is encouraged to submit responses
online to provide critical inputs to the CBDC Road Map. As at 23 January
2023, the Consumer Survey had received 2286 responses since its launch on
10 November 2022. The Bank is encouraged by the positive responses
received so far which will be critical in informing the CBDC adoption.

SECTION THREE
DOMESTIC ECONOMIC DEVELOPMENTS

Real Sector Developments
39. The economy is estimated to have grown by 4.0% in 2022 underpinned by
remarkable growth in the mining and quarrying sectors, wholesale and retail
trade, accommodation and food service industry, electricity production and
construction services, among others. The positive performance of these
sectors more than offset the drought-induced output decline sustained by the
agriculture sector in 2022.

40. Economic growth is forecast at 3.8% in 2023, largely premised on the
anticipated increase in mining output supported by the favourable
international commodity prices. The recovery of the agriculture sector,
following the drought-induced fall in outturn thus far, is also expected to
contribute significantly to growth in 2023. Further, the prevailing stable
economic conditions are expected to enhance activity in the manufacturing,
wholesale, and retail trade sectors.

41. Downside risks to the projected growth for 2023 emanate from the low and
erratic supply of electricity experienced since December 2022. The RussiaUkraine conflict also continues to pose downside risks to economic activity
on account of its impact on food and energy prices. The current efforts to
stabilise and increase the availability of electricity through the addition of
600MW from Hwange Power Station are expected to ease the power supply
challenge. Furthermore, the expected water inflows into Lake Kariba will
also result in the resumption of normal operations at the Kariba South Power
Plant.

Gold Deliveries
42. Gold deliveries to Fidelity Gold Refinery (Private) Limited (FGR) increased
by 19.1% to 35,280.07 kgs for the period extending from 1 January to 30
December 2022, from 29,629.62 kgs delivered during the same period in
2021. The annual contribution by primary and small-scale gold producers
increased by 0.3% and 30.4%, respectively, during the period extending
from January to December 2022. The Gold Incentive Scheme put in place
by Government in 2021 has had a significant effect on the deliveries of gold
to FGR by the small-scale gold producers. Table 4 shows the gold deliveries
as at the end of December 2022.

Table 4: Gold Deliveries (Kgs) to FGR - Jan 2021 to December 2022

% Change
Month
Primary
Small
Scale
Total
Primary
Small
Scale
Total
Primary
Small
Scale
Total
Jan

Feb

Mar

April

May

June

July

Aug

Sept

Oct

Nov

Dec

Total

Source: Fidelity Gold Refinery (Private) Limited


Inflation Developments
43. In line with the Banks’ forecasts, both annual headline and month-on-month
inflation continued to slow down and closed the year at 243.80% and 2.4%,

respectively. The Bank had in its monetary policy statement of July 2022,
projected annual inflation to end the year at around 250% and month-onmonth inflation at 3%. The disinflationary trend continued in 2023 with
month-on-month inflation declining from a peak of 30.7% in June 2022 to
2.4% in December 2022, and 1.1% in January 2023. Annual inflation also
declined to 229.8% in January 2023.

44. It is, however, important to note that the ZW$ inflation is no longer a true
representative of the cost of living in Zimbabwe as the country is in a dual
currency system where prices and household incomes are also in both USD
and local currency. In this context, Zimbabwe’s inflation needs to be
recalibrated to reflect the dual currency nature of incomes and prices in the
economy to provide a true reflection of the cost of living in the country.

45. As at end December 2022, the FCA deposits in the banking system
accounted for 64.2% of total deposits, with the remainder being ZW$
deposits. Transactional activities in the retail and wholesale sectors also
points to the same structure of currency composition as shown by recent
Confederation of Zimbabwe Industry (CZI) surveys, which reported that on
average USD sales contribute 66% to foreign currency generation for the
businesses. The dual currency structure of the economy is corroborated by
estimates by the Zimbabwe National Statistics Agency (ZimStat) at
Classification of Individual Consumption by Purpose (COICOP) division
level as shown in Table 5.

Table 5: Proportions of Domestic Expenditure in Foreign Currency and Local Currency
(%) by Consumer Price Index (CPI) Division
COICOP DIVISIONS
COICOP
Weights
% of Expenditure in
Total
USS$
ZW$
Food and Non-Alcoholic Beverages

Alcoholic Beverages and Tobacco

Clothing and Footwear

Housing, Water, Electricity, Gas and Other
Fuels

Furniture and Equipment

Health

Transport

Communication

Recreation and Culture

Education

Restaurants and Hotels

Miscellaneous Goods and Services

Total

Source: ZimStat, 2023

46. As such, an inflation profile that combines US dollar and Zimbabwe dollar
price dynamics, which is currently being computed by ZimStat as a blended
inflation needs to be considered and recalibrated to reflect the current
proportions of expenditure and incomes obtaining in the economy and
adopted as the official inflation for Zimbabwe.

47. In line with the stability in general prices in the economy, the blended
inflation profile, annual inflation remained relatively stable at 105.5% in
December 2022 from 106.3% in August 2022. Heightened global food
prices saw domestic annual food inflation elevated at an average of 132%

compared to non-food inflation average of 51.2% in 2022, as shown in
Figure 6.

Figure 6: Annual Inflation (%) (September 2021 to January 2023)

Source: ZimStat, 2023

48. Reflecting obtaining stability in the prices, annual inflation in January 2023
stood at 101.5% from 105.5% in December 2023. Monthly inflation
declined from a peak of 18% in June 2022 to close the year at 1.3% in
December 2022 and was much lower at 0.7% in January 2023, as shown in
Figure 7.


All Items
Food and non alcoholic beverages
Non food

Figure 7: Month-on-Month Inflation (%)

Source: ZimStat, 2023

49. The inflation developments largely reflect movements in the exchange rate
as prices in USD have been relatively stable and, in some instances,
declining. This points to the need to sustain exchange rate stability to anchor
inflation expectations and stabilize prices under the dual currency
environment.

Monetary Developments1
50. Reserve money stock stood at ZW$104.04 billion as at 31 December 2022,
compared to ZW$33.55 billion recorded as of 30 June 2022. The increase
was largely due to the levying of statutory reserves on foreign currency
accounts (FCA) deposits, which began on the 1 September 2022. The local
currency equivalent of the statutory reserves has been increasing with

1 Provisional monetary statistics pending finalization of the RBZ audit process.

Food and non alcoholic beverages
Non food
All Items

changes in the exchange rate, thus explaining the significant build-up in
reserve money, which was witnessed in the last quarter of 2022.

51. As a result, statutory reserves, both in local and foreign currency, now
constitute over 90% of total reserve money, as shown in Figure 8.

Figure 8: Components of Reserve money as at the end December 2022

Source: RBZ, 2022

52. The increase in statutory reserves, however, signifies the tightening of
monetary policy since these reserves are locked up at the Bank, and are not
available for on-lending by banks.

53. Excess bank reserves (ZW$ balances at the Bank) declined from levels of
around ZW$14 billion in 2021 to less than ZW$100 million (or 0.1% of
reserve money) by end-December 2022, signifying further tightening of
liquidity conditions in the economy.

Currency
Issued
7.28%
FCA - Statutory
Reserves
43.57%
ZW$ - Statutory
Reserves
49.14%
ZW$ Balances
0.01%

54. Broad money (M3) amounted to ZW$2 338.26 billion as at end-December
2022, compared to ZW$1 119.70 billion recorded in June 2022. The increase
largely reflected a rise of ZW$669.70 billion in foreign currency accounts
(FCA) deposits, due to revaluation arising from exchange rate movement.
The inter-bank exchange rate moved from ZW$370.9646 per US$1 in June
2022 to ZW$684.3339 per US$1 by end of December 2022, thus affecting
the local currency equivalent of the FCA deposits. The Zimbabwe dollardenominated deposits also rose by ZW$548.08 billion between June 2022
and December 2022, largely reflecting credit creation by banks.

55. As a result, foreign currency deposits, at 56.88% of the total money supply
as at December 2022, now dominate money supply, with local currency
deposits constituting 43.04% of money supply, while currency in circulation
accounted for the remaining 0.18%. Figure 9 shows monetary developments
for the period December 2021 to December 2022.

Figure 9: Monetary Developments (ZW$ Billion)

Source: RBZ, 2022

Foreign Currency Deposits
Local Currency Deposits
Currency in Circulation

56. Broad money grew by 391.88% on an annual basis, an increase from
131.86% realised in December 2021. Largely reflecting the impact of
exchange rate movements, foreign currency deposits increased by 530.07%,
thereby contributing 234.96 percentage points to the 391.88% annual
increase in money supply. Local currency deposits also went up by 283.63%
on a year-on-year basis, contributing 156.53 percentage points to the annual
increase in broad money (M3). Figure 10 shows the relationship between
broad money and inflation.

Figure 10: Money Supply Growth and Inflation (%)

Source: RBZ, 2022


57. Underpinning the growth in M3 were increases of ZW$391.69 billion (or
470.65%) and ZW$865.52 billion (or 388.25%) in net claims on
Government and credit to the private sector, respectively. Of the ZW$391.69
billion increase in net claims on Government, ZW$137.31 billion was due

Jan-19
Mar-19
May-19
Jul-19
Sep-19
Nov-19
Jan-20
Mar-20
May-20
Jul-20
Sep-20
Nov-20
Jan-21
Mar-21
May-21
Jul-21
Sep-21
Nov-21
Jan-22
Mar-22
May-22
Jul-22
Sep-22
Nov-22
Broad Money Growth
Annual Inflation

to the accounting treatment of the utilization of Special Drawing Rights
(SDRs), which does not reflect actual lending to Government by the Bank.

58. Credit to the private sector was mainly channelled to agriculture and
households, which received 24.86% and 22.10% of the total credit,
respectively. The manufacturing and distribution sectors received 13.24%
and 12.62%, respectively.

59. Credit to the private sector was largely utilized for inventory build-up,
32.72%; other recurrent expenditures, 31.62%; and fixed capital
investments, 16.25%.

Stock Market Developments
60. During the period June 2022 to December 2022, the Zimbabwe Stock
Exchange (ZSE) traded in negative territory. As such, the All Share, Top 10,
Top15, Medium and Small Cap Indices declined largely due to low trading
associated with the festive season. The mining index, however, added
27.30% to close the month of December 2022 at 25 487.77 points, compared
to 20 021.24 points recorded in June 2022.

61. On a year-on-year basis, the ZSE All Share, Top 10 and Mining Indices
added 80.13%, 80.74% and 226.12%, from 10 822.36 points, 6 811.43
points and 7 815.37 points recorded in December 2021, respectively. Figure
11 shows the developments of the ZSE All Share, Top 10 and Mining
Indices for the period December 2021 to December 2022.

Figure 11: ZSE All Share, Top 10 and Mining Indices

Source: ZSE, 2022

Market Turnover
62. During the second half of 2022, trading activity was concentrated in some
selected wealth-preserving counters. As such, turnover value increased by
84.40% to ZW$81.56 billion, despite a 70.71% decline in the volume of
shares traded, amounting to 1.28 billion shares. This compares to ZW$44.23
billion and 4.37 billion shares recorded in the same period last year, as
shown in Figure 12.


31-Dec-21
31-Jan-22
28-Feb-22
31-Mar-22
30-Apr-22
31-May-22
30-Jun-22
31-Jul-22
31-Aug-22
30-Sep-22
31-Oct-22
30-Nov-22
31-Dec-22
All Share Index
Top 10 Index
Mining Index

Figure 12: ZSE Market Turnover (ZW$ Millions)

Source: ZSE, 2022

63. The proportion of foreign purchases to the value of shares traded worsened
to 10.98%, from 40.27% recorded during the comparable period in 2021.

Market Capitalization
64. Owing to the negative trading exhibited on the local bourse, coupled with
the de-listing of some counters, the ZSE lost 16.17%, or ZW$394.30 billion
worth of capitalization to ZW$2 044.87 billion in December 2022, from
ZW$2 439.17 billion in June 2022.

65. On a year-on-year basis, the ZSE capitalization added 55.24%, from
ZW$1 317.21 billion recorded in December 2021. Figure 13 shows market
capitalization developments for the period December 2021 to December
2022.


30-Dec-21
30-Jan-22
28-Feb-22
31-Mar-22
30-Apr-22
31-May-22
30-Jun-22
31-Jul-22
31-Aug-22
30-Sep-22
31-Oct-22
30-Nov-22
31-Dec-22

Figure 13: Market Capitalisation (ZW$ billions)

Source: ZSE, 2022

Victoria Falls Stock Exchange (VFEX)
66. The Victoria Falls Stock Exchange (VFEX) exhibited bearish sentiments
during the period under analysis. Resultantly, the VFEX All Share Index
declined by 17.82% to close the month of December 2022 at 94.83 points,
from 115.39 points recorded in June 2022. On an annual basis, the VFEX
All Share Index lost 13.55%, from 109.69 points recorded in December
2021, as shown in Figure 14.


31-Dec-21
31-Jan-22
28-Feb-22
31-Mar-22
30-Apr-22
31-May-22
30-Jun-22
31-Jul-22
31-Aug-22
30-Sep-22
31-Oct-22
30-Nov-22
31-Dec-22

Figure 14: Victoria Falls Stock Exchange All Share Index


Source: VFEX, 2022

Market Capitalization
67. The VFEX Market capitalization increased by 55.48% to US$0.42 billion in
December 2022, from US$0.27 billion recorded in June 2022.


26-Feb-22
12-Mar-22
26-Mar-22
09-Apr-22
23-Apr-22
07-May-22
21-May-22
04-Jun-22
18-Jun-22
02-Jul-22
16-Jul-22
30-Jul-22
13-Aug-22
27-Aug-22
10-Sep-22
24-Sep-22
08-Oct-22
22-Oct-22
05-Nov-22
19-Nov-22
03-Dec-22
17-Dec-22
31-Dec-22

SECTION FOUR: BANKING SECTOR AND NATIONAL
PAYMENTS DEVELOPMENTS

CONDITION AND PERFORMANCE OF THE BANKING SECTOR
68. The banking sector remains safe and sound and continues to play an
important role in the recovery and growth of the economy. The current
banking sector architecture is shown in Table 6
Table 6: Banking Sector Architecture
Type of Institution
Number
Commercial Banks

Building Societies

Savings Bank (POSB)

Total Banking Institutions

Other Financial Institutions Under the Supervision of the Reserve Bank
Credit-only-MFIs

Deposit-taking MFIs

Development Financial Institutions (SMEDCO, IDBZ, IDCZ and AFC
Land & Development Bank)

Total Other Institutions

Total Number of Institutions

69. The number of building societies reduced from five (5) to four (4) following
the merger between CBZ Bank and CBZ Building Society, effective 30
September 2022 and consequently the cancellation of the building society’s
licence.
70. Following the Bank’s pre-opening inspection which assessed Time Bank’s
readiness to conduct banking business, the banking institution was
authorized to recommence some banking business effective 27 October
2022, bringing the number of operating commercial banks to 14. Time Bank
was authorised to conduct limited banking activities and is not permitted to

take deposits from the public in line with its business strategy and having
regard to the institution’s risk management structures and processes, level
of capitalisation, as well as corporate governance arrangements.

Financial Soundness Indicators
71. The banking sector remains well capitalized with adequate levels of
liquidity, high earnings performance and low levels of non-performing
loans. Key banking sector financial soundness indicators are depicted in
Table 7.

Table 7: Financial Soundness Indicators
Key Indicators
Benchmark
Dec- 21
Mar-22
Jun-22
Sep-22
Dec-22
Total Assets
-
$762.96bn
$969.24bn
$1.94tn
$3.11tn
$3.81tn
Total Loans &
Advances
-
$229.94bn
$320.36bn
$603.14bn
$1.01tn
$1.29tn
Net Capital Base
-
$122.85bn
$170.00bn
$349.48bn
$535.96bn
$746.30bn
Core Capital
-
$100.83bn
$138.21bn
$284.74bn
$438.11 bn
$611.11bn
Total Deposits
-
$476.35bn
$582.26bn
$1.12tn
$1.91tn
$2.29tn
Net Profit
-
$59.29bn
$27.05bn
$181.25bn
$342.28bn
$503.13bn
Return on Assets

Return on Equity

Capital Adequacy
Ratio

Tier 1 Ratio

Loans to Deposits Ratio

NPLs Ratio

Liquidity Ratio


Banking Sector Capitalization
72. As at 31 December 2022, the banking sector was adequately capitalized,
with all banking institutions in compliance with the prescribed minimum
capital adequacy ratio of 12% and tier 1 ratio of 8%. The average capital
adequacy and tier 1 ratios were 37.15% and 26.92%, respectively.

73. Aggregate core capital increased by 114.62% from ZW$284.74 billion as at
30 June 2022 to ZW$611.11 billion as at 31 December 2022. The growth in
core capital was mainly attributed to the capitalisation of retained earnings
(including revaluation gains from investment properties, translation gains
from foreign exchange-denominated assets) and capital infusion by
shareholders.

74. The banking sector capital position is considered adequate to absorb
unexpected shocks or losses as well as ensuring business continuity.

75. Fifteen (15) out of 18 banking institutions (excluding POSB) reported core
capital levels that comply with minimum capital requirements as shown in
Table 8.

Table 8: Core Capital levels as at 31 December 2022.
Institution
Reported
Core
Capital as at 31 Dec
2022 (ZW$)
Reported
Core
Capital 31 Dec 2022
** (US$)
Capital Adequacy
Ratio (CAR).
(Min 12%)
Compliance Status
COMMERCIAL BANKS
AFC Commercial Bank
22,524,556,486.52
32,773,307.10
32.51%
Compliant
BancABC
21,581,976,221.21
31,401,849.57
26.11%
Compliant
First Capital Bank
25,604,119,031.15
37,254,081.18
27.55%
Compliant
CBZ Bank
69,507,843,789.03
101,134,151.59
23.27%
Compliant
Ecobank
42,023,653,281.55
61,144,559.95
27.16%
Compliant
FBC Bank
27,996,177,012.50
40,734,533.77
20.85%
Compliant
Nedbank
22,955,495,314.57
33,400,324.57
33.93%
Compliant
Metbank
79,718,887,152.76
115,991,254.78
83.14%
Compliant
NMB Bank
30,195,883,396.61
43,935,114.12
22.64%
Compliant
Stanbic Bank
83,986,179,273.98
122,200,179.48
29.40%
Compliant
Standard Chartered
Bank
16,729,741,368.53
24,341,831.19
39.14%
Compliant on CAR
and Non-Compliant
on the prescribed
minimum core
capital
Steward Bank
23,653,963,114.51
34,416,597.62
50.42%
Compliant

Institution
Reported
Core
Capital as at 31 Dec
2022 (ZW$)
Reported
Core
Capital 31 Dec 2022
** (US$)
Capital Adequacy
Ratio (CAR).
(Min 12%)
Compliance Status
Time Bank
$4,352,829,141.00

6,333,381. 36

83.47%
Compliant on CAR
and Non-Compliant
on the prescribed
minimum core
capital
ZB Bank
38,284,515,215.16
55,704,101.21
21.93%
Compliant
BUILDING SOCIETIES
CABS
59,498,052,324.14
86,569,870.61
30.20%
Compliant
FBC Building Society
15,281,358,097.20
22,234,428.55
40.05%
Compliant
National Building
Society
14,216,018,409.36
20,684,355.64
37.44%
Compliant
ZB Building Society
11,110,787,941.31
16,166,234.64
56.20%
Compliant on CAR
and Non-Compliant
on the prescribed
minimum
core
capital
SAVINGS BANK
POSB
6,236,675,367.21
9,074,384.09
41.30%
No
prescribed
minimum
capital
requirement

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76. Standard Chartered Bank is finalising its recapitalization processes pending
the disposal of the institution by its shareholders, while the capital position
of ZB Building Society is dependent on the outcome of the current strategic
initiatives within the Group. In line with the approval to recommence
banking business, Time Bank was permitted to gradually meet the
prescribed minimum capital requirements in terms of its strategy which
provides for a phased approach to conducting banking activities.

77. The Bank will continue to monitor progress periodically to ensure on-going
compliance with prescribed minimum capital requirements. Meanwhile,
independent external audits for the financial year ended 31 December 2022
are underway. The external audits and the capital verification exercise by
the Bank will confirm the core capital levels declared by banking institutions
as at 31 December 2022, with banks having been given authority by the

Bank to use the interbank rate or the auction rate in finalizing their 2022
financials.

Banking Sector Assets Structure
78. Total banking sector assets amounted to ZW$3.81 trillion as at 31 December
2022, up from ZW$768.46 billion as at 31 December 2021. The dominant
assets on the bank balance sheets are loans and advances (31.81%),
securities and investments (14.49%) and balances with the central bank
(11.37%) as shown in Figure 15.

Figure 15: Assets Mix as at 31 December 2022


Banking Sector Loans and Advances
79. Aggregate banking sector loans and advances increased by 114.46% from
ZW$603.14 billion as at 30 June 2022 to ZW$1.29 trillion as at 31 December
Domestic Notes
and Coins
7.90%
Balances with
Central Bank
11.37%
Balances with
Domestic Banking
Institutions
3.27%
Assets in Transit
0.05%
Balances with
Foreign
Institutions
9.34%
Securities and
Investments
14.49%
Loans, Advances,
Bankers
Acceptances and
Leases
31.81%
Foreign Claims (Including
Bills of Exchange)
0.67%
Repossessed
Properties / Assets
0.18%
Fixed Assets
11.16%
Other Assets
5.60%
Off-Balance Sheet
Items
4.16%

2022. The increase was largely attributed to an increase in foreign currencydenominated loans, leading to the increase in their proportion from 65.87%
as at 30 June 2022 to 78.20% of total banking sector loans.

80. The level of financial intermediation as measured by total loans to total
deposit ratio, improved from 52.83% recorded as at 30 June 2022, to 55.67%
as at 31 December 2022. The foreign currency loans to foreign currency
deposits ratio as at 31 December 2022 was 62.69% whilst the ZW$ loans to
deposit ratio was 41.40% as at the same reporting date.

81. The banking institutions continue to play an important role in supporting the
productive sectors which contribute towards economic recovery and growth.
The loans to the productive sectors constituted 78.45% of total loans as at
31 December 2022 up from 71.12% reported as at 30 June 2022.

82. Figure 16 shows the sectoral distribution of loans as at as at 31 December
2022.

Figure 16: Sectoral distribution of loans as at 31 December 2022

Source: RBZ

Asset Quality
83. Banking sector asset quality is satisfactory as non-performing loans (NPLs)
have remained stable at low levels. As at 31 December 2022, the average
NPLs to total loans ratio for the banking sector was 1.58%, comparing
favourably with the generally acceptable international threshold of 5%.

84. Figure 17 shows the trend in the level of NPLs ratios from December 2019
to December 2022, signifying the positive role played by the Zimbabwe
Asset Management Company (ZAMCO) and the improved credit risk
management strategies being implemented by banks to contain NPLs.

Consumptive
17.65%
Other
3.90%
Agricultural
22.94%
Manufacturing
9.42%
Commercial
6.44%
Mining
9.71%
Distribution
8.03%
Construction
0.99%
Transport
1.84%
Communication
0.64%
Financial
12.71%
Mortgage
5.73%
Productive
78.45%

Figure 17: Trend in Non- Performing Loans


85. ZAMCO wound down its operations on 31 August 2022, more than a year
before its sunset period of 31 December 2023.

Banking Sector Profitability
86. All banking institutions were profitable with reported aggregate profits of
ZW$503.13 billion for the year ended 31 December 2022, a 748.59%
increase from ZW$59.29 billion reported in the corresponding period in
2021.

87. The growth in the banking sector income largely emanated from non-interest
income, which constituted 67.82% of total income as at 31 December 2022,
up from 54.35% reported in the corresponding period in 2021.


Dec-19
Mar-20
Jun-20
Dec-20
Mar-21
Jun-21
Sep-21
Dec 2-21
Jun-22
Sep-22
Dec-22
NPL (%)
NPL
Benchmark

88. The income mix for the sector is depicted in Figure 18.

Figure 18: Banking Sector Income Mix as at 31 December 2022


89. The total non-interest income mainly consists of revaluation gains from
investment properties (62.88%), fees and commissions (29.15%) and
translation gains on foreign currency-denominated assets (7.98%).

90. The return on assets and return on equity ratios were 17.43% and 54.33% as
at 31 December 2022, compared to 11.50% and 42.21% as at 31 December
2021, respectively. The trend of banking sector performance over the period
30 September 2020 to 31 December 2022 is shown in Figure 19.
Notes and Coins
0.13%
Balances with
Central Bank
11.86%
Balances with
Domestic Banking
Institutions
3.42%
Assets in Transit
0.05%
Balances with Foreign
Institutions and Foreign
Cash
17.86%
Securities and
Investments
15.12%
Loans, Advances,
Bankers
Acceptances and
Leases
33.19%
Foreign Claims
(Including Bills of
Exchange)
Repossessed
Properties /
Assets
0.19%
Fixed Assets
11.65%
Other Assets
5.84%

Figure 19: Banking sector performance

Banking Sector Deposits and Liquidity
91. The average prudential liquidity ratio was 59.50% as at 31 December 2022,
largely reflecting high stock of liquid assets in the sector. The trend in the
liquidity ratio from 31 December 2018 to 31 December 2022 is shown in
Figure 20.

Sep-20
Dec-20
Mar-21
Jun-21
Sep-21
Dec-21
Mar-22
Jun-22
Sep-22
Dec-22
Return on Assets
Return on Equity

Figure 20: Prudential Liquidity Ratio Trend

92. Total deposits increased by 103.57% from ZW$1.12 trillion as at 30 June
2022 to ZW$2.28 trillion as at 31 December 2022 mainly driven by growth
in foreign currency deposits. Commercial banking sub-sector deposits
constituted 91.15% of total banking sector deposits.

93. Foreign currency deposits accounted for 64.24% of total deposits as at 31
December 2022. The trend of banking sector deposits over the period 30
September 2019 to 31 December 2022 is shown in Figure 21.


Dec-18
Jun-19
Dec-19
Jun-20
Dec-20
Jun-21
Dec-21
Jun-22
Sep-22
Dec-22
industry average
minimum requirement

Figure 21: Trend in Banking Sector Deposits


Bank Charges
94. The pricing model agreed between the Bank and Bankers Association of
Zimbabwe (BAZ) in May 2022, will continue to guide the review of
transactional charges and service fees. Banking institutions are urged to
maintain a balance between business viability and the provision of
affordable and accessible products and services in the spirit of promoting
financial inclusion and the use of electronic means of payments.

95. The Bank shall continue to monitor the terms and conditions of business
activities to ensure adherence to fair business practices and reasonable
pricing in line with the Banking Act, and the Consumer Protection
Framework.


30-SEP-19
31-DEC-19
30-JUN-20
30-SEP-20
31-DEC-20
31-MAR-21
30-JUN-21
30-SEP-21
31-DEC-21
30-JUN-22
30-SEP-22
31-DEC-22
ZW$ Billions

Climate Risk Management
96. Climate change is one of the major emerging risks to financial stability. The
Bank remains alive to the impact of climate-related risks on the banking
sector through macro and microeconomic transmission channels. In this
regard, various initiatives are underway to ensure that the risk is identified,
mitigated and effectively managed.

97. In the outlook, the Bank will be focusing on the identification of climate risk
key drivers and transmission channels in the banking sector, assessing the
impact of climate risk on macroeconomic variable, and development of
climate risk management policy framework.

Enhancement of Liquidity Profile Resilience
98. As part of the efforts the promote the short-term resilience of the liquidity
profile of banking institutions, the Bank is implementing Basel III Liquidity
Standards, including the Liquidity Coverage Ratio (LCR).

99. To this end, the Bank issued Prudential Standard No: 02-2022/BSD:
Guidance on the Implementation of the Liquidity Coverage Ratio in
December 2022. The main objective of the Standard is to ensure that
banking institutions have an adequate stock of unencumbered high-quality
liquid assets that can be converted easily or immediately into cash to meet
liquidity needs in stress situations.

100. Banking institutions have been requested to submit implementation plans
before the end of February 2023, that incorporate the development /

reinforcement of policies, processes, models and systems to ensure the
availability of requisite capacity to facilitate sound determination of the
components of LCR computation.

Sustainability
101. Globally, sustainability is a subject rising on the agenda of the financial
services sector’s and the adoption of sustainability principles is considered
an essential lever for achieving social, economic and environmental goals in
most economies.

102. Cognizant of the role that financial and non-financial institutions play and
contribute to inclusive, sustainable economic development, the Bank
continues to work closely with several financial institutions in the
implementation of the Sustainability Standards & Certification Initiative
(SSCI) being driven by the European Organization for Sustainable
Development (EOSD).

103. As at 31 December 2022, 12 banking institutions, including one (1) deposittaking microfinance institution, were participating under the Bank-led
Sustainability Standards and Certification Initiative (SSCI).

104. Given the noted benefits of ingraining sustainability considerations in the
financial sector, the Bank will continue to raise awareness on the importance
of sustainability and recommend more financial institutions embrace the
adoption of sustainable banking practices. The Bank, thus, urges banking
institutions to be adaptive, enhance capacity in the area of sustainability and
become sustainability centric.

Financial Inclusion
105. The National Financial Inclusion Strategy II 2022-2026 (NFIS II) was
launched on 31 October 2022 following an extensive collaborative and
consultative process.

106. The main focus of the NFIS II is to increase the usage of formal financial
services by the target segments, and in this regard, banking institutions and
digital financial services will continue to play a critical role in deepening
financial inclusion.

107. An implementation plan to operationalise the NFIS II is now in place and
Financial Literacy, Consumer Education and Consumer Protection will be
key in promoting financial knowledge and confidence among target
segments in the uptake and usage of formal financial services.

108. A Monitoring and Evaluation Framework has also been developed to track
the implementation of the National Financial Inclusion Strategy, on an
ongoing basis.


Supervision of Large SACCOS
109. The 2022 FinScope Consumer Survey revealed that savings and credit cooperatives societies (SACCOS), which constitute a significant segment of
the microfinance sector played a key role in savings mobilisation among the
grassroots communities.

110. In this regard, as part of the implementation of the NFIS II, the Bank will
continue with its engagements with the Ministry of Women Affairs,
Community, Small and Medium Enterprises Development in the
development of the SACCOS and in strengthening supervisory oversight in
line with regional and global standards.

Credit Infrastructure

Credit Information Sharing Environment
111. The sustained availability and growth of the credit data both at the Credit
Registry and the three private credit bureaus continue to play a critical role
in the origination and ongoing management of credit risk in the financial
sector.

112. The four (4) credit reporting institutions in the country held over 20 million
searchable records as at 31 December 2022. The entire database received
more than 1.6 million enquiries during 2022 from users across various
economic sectors. Figure 22 indicates the cumulative records per institution.

Figure 22: Cumulative Loan Record per Institution


113. In the Credit Registry database, 598,137 were active loan accounts with
individual records accounting for 98% of the active loan records. Registered
subscribers accessing the Credit Registry were 238 as at 31 December 2022,
as shown in Figure 23.


FCB
CREDIT REGISTRY
XDS ZIM
FINCHECK

Figure 23:Credit Registry Loan Records as at 31 December 2022

114. Figure 24 indicates the phenomenal growth in Credit Registry usage since
its inception.
Figure 24: Credit Registry Usage Status

Closed, 1,383,954
Open, 598,137


Jun-17
Sep-17
Dec-17
Mar-18
Jun-18
Sep-18
Dec-18
Mar-19
Jun-19
Sep-19
Dec-19
Mar-20
Jun-20
Sep-20
Dec-20
Mar-21
Jun-21
Sep-21
Dec-21
Mar-22
Jun-22
Sep-22
Dec-22
Number of Inquiries

115. Gender distribution of loans is generally skewed towards male borrowers
who constituted 68.4%, while female borrowers constituted 31.6% of loan
contracts in the Credit Registry.

116. The Credit Registry database indicates that 6.5% of total loans granted to
female borrowers were delinquent contracts while male borrowers have
more delinquent loans at 6.9% as shown in Figure 25.

Figure 25: Percentage of Delinquent Loan Contracts by Gender


117. With effect from 1 January 2023, the Bank commenced the implementation
of the Phase 2 of the Credit Registry operations which entails bringing
onboard microfinance institutions as data providers. This initiative is
expected to enrich and broaden the scope of credit registry database for the
benefit of subscribers.

Collateral Registry
118. Following the successful launch of the Collateral Registry in November
2022, banking institutions and some microfinance institutions have since
created their profiles in the Collateral Registry system in readiness to
register movable security supporting borrowings. The sector has also

Male
Female

commenced instituting the necessary adjustments to internal policies and
procedures to align with the requirements of the Collateral Registry system.

119. Starting in the first quarter of 2023, the Bank has scheduled further outreach
and awareness programs for MFIs, MSMEs and other stakeholders who
were not covered in the initial phase.

Deposit-Taking Microfinance Institutions’ Capitalisation
120. As at 31 December 2022, the deposit-taking microfinance institutions
(DTMFIs) subsector was not adequately capitalized, with only two (2) out
of the seven (7) operating deposit-taking microfinance institutions being
compliant with the minimum capital requirements of the ZW$ equivalent of
US$5 million. The sub-sector has not been able to significantly grow its
capital over the year with some of the DTMFIs posting losses since
inception.

121. Aggregate core capital for the sub-sector of ZW$11.68 billion as at 31
December 2022 represents a 17.51% increase over the quarter from
ZW$9.94 billion as at 30 September 2022.

122. The reported minimum capital levels for the DTMFIs as at 31 December
2022 are indicated in Table 9.

Table 9: DTMFI Sub-Sector Capitalization (Minimum Requirement US$5m)
Institution
Core
Capital
30.09.2022
(ZW$ million)
Core
Capital
31.12.2022
(ZW$ million)
Core
Capital
31.12.2022
(US$
million)*
Status of Compliance
African
Century
Limited
3,722.79
3,836.00
5.58
Compliant
Innbucks
Microbank
(formerly
Ndoro
Microfinance)
2,780.52
3,675.42
5.35
Compliant
Success
Microfinance
Bank
1,356.72
1,830.48
2.66
Non-Compliant
Zimbabwe
Women’s
Microfinance
Bank
803.39
707.76
1.03
Non-Compliant
EmpowerBank
Limited
970.11
1,332.76
1.94
Non-Compliant

GetBucks
Microfinance
Bank
382.43
438.15
0.64
Non-Compliant

Lion
Microfinance
Bank
-79.39
-143.94
-0.21
Non-Compliant

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123. The DTMFIs need to be adequately capitalised on an ongoing basis to
capacitate the institutions to play a more critical role in fostering financial
inclusion. In this regard, the Boards and shareholders should remain
resolutely focused on implementing measures including viable strategic
options that bolster the institutions’ capital levels.

Portfolio Quality
124. The total sub-sector loans of ZW$7.21 billion as at 31 December 2022
represent a 39.19% increase from ZW$5.18 billion as at 30 September 2022.
Portfolio quality improved as evidenced by the decline in the Portfolio-atRisk (PaR) ratio (>30 days) of 15.22%, down from 19.36% as at 30

September 2022. However, the ratio compares unfavourably with the
international benchmark of 5%. It is, therefore, imperative for the
institutions to strengthen their credit risk management practices and internal
controls to improve the quality of their loan portfolios.


Earnings Performance
125. The subsector recorded an improvement in the aggregate earnings from
ZW$29.49 million for the period ended 31 December 2021, to ZW$6.53
billion for the period ended 31 December 2022. The earnings performance
was, however, largely driven by revaluation gains on investment properties
and foreign currency-denominated assets.

126. Four (4) institutions namely African Century limited, Getbucks
Microfinance, Innbucks Microbank and Success Microfinance reported
profits during the period ending 31 December 2022. This underscores the
need for the institutions to review their business models and institute
credible
revenue
enhancement
measures
to
ensure
institutional
sustainability.

NATIONAL PAYMENT SYSTEMS
127. To ensure stability and compliance of the national payment systems, the
Bank conducted on-site examinations and off-site analysis during the second
half of 2022. Consequently, the payment systems comprising twenty-four
(24) payment system providers and twenty-five (25) participant banks
remained sound, safe, and stable characterized by growth in transaction
activities.

128. Digital payment systems transaction values continued on an upward
trajectory with a 220% growth to ZW$33.2 trillion in 2022. The volume of
transactions, on the other hand, recorded a decrease of 22% to 1.13 billion
during 2022, as shown in Figure 26.

Figure 26: Digital Payment Systems Annual Values and Volumes for 2015 to 2022


Real Time Gross Settlement (RTGS)
129. The improved performance was witnessed on the Zimbabwe Electronic
Transfer and Settlement System (ZETSS) also known as the Real Time
Gross Settlement system. In this regard, RTGS transaction values increased
by 355% to ZW$22.5 trillion in 2022 from ZW$4.9 trillion in 2021.
Transaction volumes rose marginally by 3.4% to 12.9 million in 2022
compared to the previous year. Figure 27 shows RTGS annual volumes and
values from 2015 to 2022.


Volumes in Billions
Values in Tillions
Values LHS
Volumes RHS

Figure 27: RTGS Annual Values and Volumes 2015 to 2022


Cybersecurity
130. The ecosystem of cybersecurity is ever-changing and cyber-attacks continue
to expand in scale and scope. In this regard, the Bank remains attentive to
digital financial services whose elevated cyber security and money
laundering threats have implications for financial stability.

131. The Bank encourages financial institutions to share information on cyber
security through incident reporting, increase education and awareness
campaigns and to collaborate with other key stakeholders involved in cyber
security matters.

Euro Mastercard and Visa Compliance (EMV)
132. The Bank continues to encourage financial services providers to expedite
the phasing out of non-EMV of compliant access points and devices in the
market as part of enhancing cyber security risk management.

133. The market has so far only achieved 39% and 32% compliance for Cards
and Point of Sale, respectively.


Volumes in Millions
Values in Trillions
Values LHS
Volumes RHS

SWIFT ISO 20022 Requirements for Cross-Border Payments
134. The financial services industry’s payment messaging systems are moving
rapidly to adopt ISO 20022, which will be the new standard for SWIFT
payment messages globally by 31 March 2023.

135. The Bank has noted that all the users of SWIFT in the country are committed
to implementing the new ISO format and that testing is being undertaken to
ensure readiness by the Go-live date, together with the rest of the SWIFT
global community.

Implementation of AML–CFT Preventative Measures
136. The Bank remains committed to mitigating money laundering and the
financing of terrorism and proliferation risks in the payment, clearing, and
settlement systems. This is being undertaken through the implementation of
risk-based off-site analysis and onsite examinations in line with the Money
Laundering and Proceeds of Crime Act as well as Financial Action Task
Force (FATF) recommendations.

137. The Bank urges payment systems services providers to continuously
monitor financial transactional activities to effectively assess and manage
money laundering and terrorism financing risk as well as compliance with
AML/CFT preventive measures.

138. Given the heightened volumes and cyber risks, payment service providers
and banks are urged to deploy appropriate regulatory technologies (Regtech)
to enhance compliance.

Interoperability
139. The direct transfers processed through mobile, internet, POS, and ATM
platforms integrated into the national switch showed an upward trajectory in
values and a mixed trend in volumes during 2022, as shown in Figure 28.

Figure 28: Retail Payment Systems Interoperability for 2022


Market Conduct and Consumer Protection
140. Digital financial services (DFS) have delivered substantial financial
inclusion benefits and contributed immensely to economic growth and
development. Among the positive impacts on consumers are improved
transacting culture, convenience, and a useful management tool during
natural disasters/pandemics such as COVID-19.

141. To increase consumer awareness of digital financial services, the Bank has
partnered with the Post and Telecommunication Regulator Authority of
Zimbabwe and the Consumer Council of Zimbabwe to conduct road shows
across the country.


Millions
Billions ZW$
Values LHS
Volumes RHS

142. Financial services providers are encouraged to also put in place education
and awareness programs that ensure the protection of consumer rights.

Licensing and New Initiatives
143. During the period under review, the Bank received fifty (50) applications
from both financial institutions and other prospective payment system
providers.

144. The applications are at various stages within the Bank’s approval process
system with twenty-four (24) product additives and enhancements approved
for existing services, fifteen (15) provided with appropriate guidance, seven
(7) products still work in progress whilst two (2) were rejected.


Pan African Payment and Settlement System (“PAPSS”)
145. The Country signed up to the Pan African Payment and Settlement System
(PAPSS) agreement in March 2022 to be part of a project which is being
developed in collaboration with Afreximbank.

146. PAPSS is an interoperable cross-border financial market infrastructure
enabling the integration of Africa’s financial markets to stimulate, hasten
and sustain the pace of regional integration, economic growth and
development and financial inclusiveness in the continent.

147. As this is a payment system for cross-border transactions, banks will be
advised of their role as they handle most of the payments.

FINTECH Regulatory Sandbox
148. As of 31 December 2022, a total of twenty-three (23) applications had been
received for sandboxing while twenty (20) additional applications were at
various stages of evaluation. The applications received in the Regulatory
Sandbox were largely focused on financial inclusion products (26%), retail
payments (18%) and equity crowdfunding (10%), as shown in Figure 29.

Figure 29: Distribution of Applications to Regulatory Sandbox as of 31 December

SECTION FIVE
EXTERNAL SECTOR DEVELOPMENTS

Global and Regional Economic Developments

149. The IMF in its January 2023 world economic outlook update, projected
global economic growth to moderate to 2.9 % in 2023 from 3.4% in 2022,
weighed down by elevated inflation pressures, tightening global financial
conditions associated with high interest rates, particularly in the US and
some European economies as well as the negative spill-over effects from the
Russia-Ukraine crisis. In addition, the persisting waves of the Covid-19
pandemic also continue to disrupt economic activity in some regions.

150. The global economy is projected to rebound to a 3.1% growth in 2024,
supported by the reopening of Chinese economy which has paved the way
for a faster global economic recovery. The IMF also projects global inflation
to moderate from 8.8% in 2022 to 6.6% in 2023 and 4.3% in 2024. Table 10
shows the global and regional economic growth developments and outlook.

Table 10 Global and Regional Economic Growth & Outlook (%)
Region/Country
2021 Act. 2022 Proj.
2023 Proj.
World Output
6.2
3.4
2.9
Advanced Economies
5.4
2.7
1.2
USA
5.9
2.0
1.4
Euro-Area
5.3
3.5
0.7
United Kingdom
7.6
4.1
-0.6
Emerging Markets & Developing
Economies
6.7
3.9
4.0
Emerging and Developing Asia
7.4
4.3
5.3
China
8.4
3.0
5.2
India
8.7
6.8
6.1
Emerging and Developing Europe
6.9
0.7
1.5
Russia
4.7
-2.2
0.3
Sub Saharan Africa
4.7
3.8
3.8
Nigeria
3.6
3.0
3.2
South Africa
4.9
2.6
1.2


Source: IMF World Economic Outlook (WEO): October 2022 Update


International Commodity Price Outlook
151. Reflecting the anticipated slowdown in the global economy, commodity
prices are expected to continue moderating, a development that will weigh
down on trade. Figure 30 shows developments in major commodity price
indices for the year 2022 and the outlook.

Figure 30: International Commodity Price Indices Development and outlook:
(Nominal US$ 2010=100)

Source: World Bank and Bloomberg, 2022

Balance of Payments Developments
152. The country’s external sector remained relatively strong as evidenced by a
surplus current account balance estimated at US$305 million in 2022. This
marks the fourth consecutive year of current account surplus since 2019. The
sector benefited from resilient remittance inflows, coupled with strong
export performance due to favourable commodity prices for key exports.
The current account surplus is projected to gradually decline over the
medium term, reflecting rising imports as the economy continues to recover
and the adverse effects of the slowdown in the global economy.

153. The sustained current account surplus continues to be driven by strong
remittances. The deficits in the goods, services, and primary income
accounts were moderated by strong performance in the secondary account
which records transfers to international organisations and individuals
(remittances).

2023f
2024f
Energy
Food
Base Metals
Precious Metals

Figure 31: Current Account Developments (US$ millions)

Source: RBZ and Zimstat estimates

154. The positive balance of payment position was buttressed by robust
performance in foreign currency receipts in the country which increased
from US$9.86 billion in 2021 to US$11.57 billion in 2022, as shown in
Table 11.


-1500
-1000
-500

-2000
-1000

Trade Bal
Services Bal
Primary Income Bal
Secondary Income Bal
Current Ac Bal

Table 11:Total Foreign Currency Receipts (US$ millions)
Type of Receipt
Year 2022 (US$ Million)
Year 2021 (US$ Million)
%
Change
Amount
(US$
Millions)
%
Contribution
Amount
(US$
Millions)
%
Contribution

Export
Proceeds

International
Remittances
Diaspora
Remittances

NGOs

Loan
Proceeds

Income
receipts

Foreign
Investment

TOTAL


Exports Receipts
155. Cumulative export earnings or proceeds as at 31 December 2022 were
US$7.42 billion compared to US$6.37 billion earned during the same period
in 2021. This represents an increase of 16.5% in 2022. The mining sector
export earnings accounted for 75.8% of the total export earnings in 2022,
underlying the need for diversification and broadening of the export base.
Table 12 shows export earnings/proceeds by sector as at 31 December 2022.

Table 12: Exports Earnings by Sector (US$ million)
Sector
31 Dec 2022
31 Dec 2021
% Change
Mining
5,627.50
5,011.50
12.3%
Platinum
2,269.40
3,019.50
-24.8%
Gold
2,462.00
1,210.10
103.5%
Chrome ore + Ferrochrome
247.1
173.5
42.4%
Diamonds
112.8
244.7
-53.9%
Other minerals
536.2
363.7
47.4%
Tobacco
968.1
575.5
68.2%
Tourism
263.6
112.7
133.9%
Manufacturing
203.1
175.8
15.5%
Transport
157.9
186.9
-15.5%
Agriculture (General)
144.6
169.1
-14.5%
Horticulture
42.1
40.1
5.0%
Postal & Telecommunications
10.1

-62.6%
General Services
2.5
72.7
-96.6%
Total
7,419.5
6,371.3
16.5%

156. Minerals underpinned merchandise exports performance in 2022, growing
by 12.3%, from US$5,011 million in 2021 to US$5,627 million, on account
of higher production coupled with favourable commodity prices for key
commodities. Agricultural exports increased from US$784.7 million in 2021
to US$1,154.8 million in 2022, led by tobacco, following a good season.


Foreign Payments Performance
157. For the year 2022, banks processed foreign payments amounting to US$8.59
billion, representing a 23.1% increase in foreign payments from US$6.98
billion recorded for the same period in 2021. The major drivers of foreign
payments are capital and intermediate goods, consistent with the increased
capacity utilisation. Also of significance are foreign payments for fuel and

electricity, driven by increased global energy prices. Table 13 shows foreign
payments by category for the same period in 2022 and 2021.

Table 13: Foreign Payments by Category in US$ Millions
Category

% Variance
Contribution

Contribution

Merchandise Imports (excl.
energy)

- Consumption &
Manufactured Goods

- Capital Goods

- Intermediate Goods

Energy (Fuel & Electricity)

- Fuel

- Electricity

Service Payments

- Technical, Professional &
consultancy

- Software

- Other (tourism, edu, freight
etc)

Income Payments (Profits,
Dividends)

- Dividends

- Interest Payments

- Other (Salaries, Expats,
Rental)

Capital Remittances (Outward)

- External Loan Repayments

- Disinvestments

- Foreign Investment

Other Payments

- Card Payments

- Refunds

Total


Services Trade
158. Trade in services recovered from the Covid-19 shock with travel, passengers
transport and other key services trending up. Resultantly, services exports
increased from US$215.7 million in 2021 to US$453.3 million in 2022.
Services imports similarly rose from US$965.4 million in 2021 to
US$1,436.8 million in 2022. Travel services picked up, following the
relaxation of the Covid-19 containment measures with people now moving
freely across borders. Freight services also increased in line with increasing
merchandise exports and imports.

Remittances
159. As at 31 December 2022 total International Remittances amounted to
US$2.80 billion, an increase of 16% from 2021’s figure of US$2.40 billion.
Of the total amount, diaspora remittances amounted to US$1.66 billion, a
16% increase from US$1.43 billion received during the same period in year
2021.

160. Of the total diaspora remittances, 40% come from South Africa followed by
the United Kingdom (25%). Table 14 shows remittance by corridor.

Table 14: Diaspora Remittances by Source
COUNTRY
TOTAL PER SOURCE
COUNTRY
% Contribution
South Africa
583,375,863
40%
United Kingdom
361,681,114
25%
United States of America
158,920,458
11%
Australia
89,869,266
6%
Botswana
39,561,360
3%
Canada
41,342,011
3%
Ireland
17,157,377
1%
Germany
11,556,748
1%
New Zealand
9,463,072
1%
Malawi
8,840,620
1%
Other Countries
141,335,373
10%
Total MTAs
1,463,103,262
88%
Banking Channel
195,256,636
12%
Total
1,658,359,898
100%

Capital and Financial Account Developments
161. The capital account balance was in positive territory during the first nine
months of 2022, on the back of continued official capital transfers from the
country’s external development partners, in support of on-going and new
government projects. The capital account also continued to benefit from the
support rendered by the country’s Development Partners. The support was
spread on development programs and projects across various priority sectors
of the economy.

162. Direct investment into the country increased from US$237.5 million in 2021
to US$327.9 million in 2022, mainly reflecting efforts by Government to

improve the investment climate through a raft of reforms. Significant
expansions and new projects, particularly in the mining sector, also explain
the improvement in direct investment inflows.

SECTION SIX
NEW MONETARY POLICY MEASURES

163. The Bank has been using reserve money targeting as its anchor for monetary
policy since 2020, until June 2022, when reserve money-inflation-exchange
rate relationships began to weaken. As a result of the breakdown in the direct
link between reserve money and inflation, the Bank shifted towards using a
combination of interest rate and exchange rate targeting as the policy
nominal anchors. The adjustment of the policy interest rate and continued
sterilisation interventions through the foreign exchange auction system and
sale of gold coins have been the major contributing factors towards the
current downward trend in inflation.

164. This two-pronged approach to dealing with inflation should continue to be
supported by an efficient liquidity management of government finances
given the latter’s role and size (at 70%) in our domestic economy. Efficient
liquidity management is critical to support the smooth execution of the
government’s budget even in times of fiscal consolidation or fiscal surplus,
not least because most of the suppliers to government are not borrowed
entities.

165. A stable exchange rate is critical in reducing the exchange rate pass-through
onto domestic prices which is inherently high in dual currency economies.
The Bank will thus focus on smoothening exchange rate shocks through
regular foreign currency sales to banks from the surrender portion of foreign
exchange receipts in the outlook period, taking advantage of the reduced
foreign currency demand on the auction system from averages of about

US$45 million per week at its peak to current levels of below US$20 million
per week.

166. The Bank will continue its tight monetary policy stance in sync with
expected average inflation to sustain the current stability of inflation and
exchange rates. The moderation in interest rates is important and
necessitated by the downward trend in the month-on-month inflation since
the last quarter of 2022, which saw monthly inflation falling from 12.4% in
August 2022 to 2.4% in December 2022. The Bank expects the downward
trend in inflation to continue into 2023 as evidenced by the 1.1% reduction
in monthly inflation in January 2023.

167. In view of the above developments and monetary policy measures that were
unanimously agreed on by the Monetary Policy Committee (MPC), the Bank
outlines the following specific monetary measures:

i.
Interest rates
168. Consistent with the current and expected inflation outturn, the Bank will,
with effect from 1 February 2023, review the policy rates as follows:
i.
Reducing the Bank policy rate from 200% per annum to 150% per
annum;
ii.
Reducing
the
lending
rate
on
the
Medium-term
Bank
Accommodation Facility for the productive sectors of the economy
(including individuals and MSMEs) from 100% per annum to 75%
per annum;
iii.
Maintaining the prevailing Bank policy rates as the minimum
lending rates for all banks;

iv.
Adjusting the minimum deposit interest rates on savings and time
deposits to 30% and 50% per annum, respectively; and
v.
Maintaining the minimum deposit interest rate on savings and time
FCA deposits at 1% and 2.5% per annum, respectively.

ii.
Standardising statutory reserves
169. Statutory reserve requirements are an important part of the Bank’s tight
monetary policy stance as they impose liquidity buffers on financial
institutions and increase the banking sector’s resilience against systemic
risks. In this regard, the Bank will, with effect from 1 February 2023,
standardise statutory reserve requirements on domestic currency and foreign
currency deposits as follows:
i.
Foreign currency demand and call deposits, 10%;
ii.
Foreign currency time and savings deposits, 5%;
iii.
Domestic currency demand and call deposits, 10%; and
iv.
Domestic currency time deposits, 5%.

170. The statutory reserve ratios will be reviewed by the MPC from time to time
depending on the market liquidity conditions to keep credit expansion under
check.

iii.
Gold coins
171. The use of gold coins as an open market instrument for managing liquidity
will continue as part of the Bank’s sterilisation interventions to achieve a
stable exchange rate. The Bank has no plans to withdraw the gold coins in
the short and medium term until such a time when stability starts to create a
high appetite for business and consumers to hold domestic currency-

denominated assets. As such, the issuance of both higher and smaller
denominations of gold coins will continue as an open-market operation
(OMO) instrument and investment instrument for value preservation.

iv.
Further liberalisation of the foreign exchange market
172. The foreign currency auction system remains a critical part of the foreign
currency market for the economy under the dual currency system and will
continue to operate alongside the willing-buyer willing-seller (WBWS)
market. The limit for the WBWS will remain at US$100,000 per entity in
line with the Foreign Exchange Auction System limits for secondary users.

173. As part of its foreign currency liberalization process, the Bank will support
the WBWS foreign currency trading system by availing foreign currency to
banks and Bureaux de Change from the surrender portion of foreign
exchange receipts. The foreign currency will be sold to banks and Bureaux
de Change through auction on a wholesale basis. The WBWS and the
auction system will, thus, continue to complement each other with the
WBWS acting as the interbank exchange rate, while the auction system
continues as a foreign currency re-distribution mechanism to gauge foreign
currency demand in the economy. The interbank exchange rate will continue
to be based on the WBWS with traders and bureaus de change allowed a +/-
10% margin from the interbank exchange rate in line with Government
policy.

v.
Increasing and standardising export retention
174. The foreign currency retention thresholds on exports and domestic FCAs are
key to influencing export earnings and the build-up of foreign currency
reserves for the country. The Bank always strives to set the thresholds at
levels that strike a balance between the promotion of production of exports
and export earnings, and the accumulation of foreign reserves.

175. Given these two objectives, export retention shall be increased and
standardised at a level of 75% across all sectors of the economy, including
firms listed on the Victoria Falls Stock Exchange (VFEX), with effect from
1 February 2023. Given this positive development, the incremental export
incentive scheme is suspended for ease of administration.


vi.
Increasing and standardising foreign exchange on domestic sales
in foreign currency

176. With a view to further liberalising the foreign exchange market and reducing
demand for foreign currency on the auction system and interbank market,
the foreign exchange retention on domestic sales in foreign currency will be
reviewed upwards to 85%, with effect from 1 February 2022.

177. This requirement shall apply to all foreign exchange deposits from domestic
sales of goods and services, with the exception of deposits in respect of fuel
sales, NGOs funds, free funds, and government funded projects and
programmes.

vii.
Export of foreign currency cash and gold coins
178. In order to align Zimbabwean policies with regional and best practice, the
maximum amount of foreign currency cash and gold coins that may be taken
out of Zimbabwe on person or in the baggage of a person who is leaving
Zimbabwe has been reviewed from US$5,000 or its equivalent in any other
currency or combination of currencies, to US$10,000 or its equivalent in any
other currency or combination of currencies. The relevant statutory

instrument to repeal Section 2 (c) of Statutory Instrument 57 of 2022, will
be gazetted in due course to give effect to this policy review.

viii.
Export of local banknotes
179. The maximum amount of Zimbabwean currency notes and coins that may
be taken out of Zimbabwe on person or in the baggage of a person leaving
Zimbabwe has been reviewed from twenty thousand Zimbabwean dollars to
an equivalent of one thousand United States dollars, at the prevailing
interbank exchange rate. The relevant statutory instrument to repeal Section
2 (b) of Statutory Instrument 57 of 2022, will be gazetted in due course to
give effect to this policy review.

ix.
Export of demonetized and old banknotes
180. Demonetised bank notes are notes taken out of circulation by the Bank in
accordance with Section 41(2) of the Reserve Bank Act [Chapter 22:15].
Since some old and demonetised banknotes may be valuable as collector
items, the limit on export of old notes that may be taken out of Zimbabwe
on person or in the baggage of a person leaving the country has been limited
to not more than 100 pieces of each denomination.

x.
Treatment of overdue export proceeds
181. In line with the provisions of the Exchange Control Act [Chapter 22:05],
exporters are under a legal obligation to repatriate the foreign proceeds from
exported goods and/or services. The non-repatriation or partial repatriation
of export proceeds is a punishable offence and the Bank will impose or
initiate various punitive measures against non-compliant or defaulting
exporters.

182. In order to incentivise exporters with overdue export receipts to repatriate
the export proceeds, exporters in this category shall, with immediate effect,
be entitled to retain 50% of their export receipts and liquidate the balance
into local currency at the prevailing WBWS exchange rate.


xi.
Compliance with minimum capital requirements

183. The current minimum capital requirements for all categories of banking
institutions and microfinance institutions will be maintained. Recognising
that the non-compliant institutions are at various stages in implementing
their recapitalisation initiatives, the Bank will extend the compliance
deadline to 31 December 2023 to allow for the completion of the
recapitalisation processes currently underway.

184. In this regard, no banking institution or microfinance institution whose core
capital is non-compliant with the prescribed minimum capital requirements
shall pay dividends to its shareholders unless it has taken adequate steps to
comply with prudential requirements, including capital adequacy and has
been granted approval by the Bank.

xii.
Foreign currency exposure limits
185. The single currency and the overall foreign exchange risk exposure limits
shall be maintained at 10% and 20% of net capital base, respectively. As
prescribed in paragraphs 28 and 29 of the Third Schedule of the Banking
Regulations S. I. 205 of 2000, reviews would be done on a case-by-case
basis, depending on a bank’s specific requirements.

SECTION SEVEN
OUTLOOK AND FORWARD GUIDANCE ON INTEREST RATES

Inflation Outlook
186. The tight monetary policy stance implemented by the Bank since the second
half of 2022 has anchored inflation expectations in the economy. As such,
despite the heightened risks of global inflation in the outlook period, the
policy scenario envisages low domestic inflation pressures with average
blended month-on-month inflation of below 1.5% in 2023. In line with
stable monthly blended inflation, annual inflation is expected to
progressively decline to close the year in the range of 10-30%.

187. The blended inflation is the most appropriate inflation for the Zimbabwean
economy in view of the increased use of foreign currency in domestic
transactions within the economy and the high levels of foreign exchange
deposits and loans in the banking sector of around 65%. Therefore, and as
was unanimously agreed by MPC, it is essential and logical that the blended
rate of inflation should be the reference rate of inflation in Zimbabwe. It is
paramount that ZimStat should consider publishing the blended rate of
inflation and the USD inflation rate in Zimbabwe for better policy guidance
in the economy.

188. Figure 32 shows the forecast inflation path for 2023 considering alternative
scenarios on month-on-month inflation outturns.

Figure 32: Blended Inflation Outlook Under Alternative Scenarios of
Month-on-Month Inflations Outturns

Source: RBZ

189. The declining annual inflation projection path for 2023 is underpinned by
the following broad assumptions:
a) Continued tight monetary policy stance, with interest rates aligned to the
expected inflation path;
b) Strong fiscal stance including insistence on value for money in all
government contracts and procurement systems;
c) Strong coordination between fiscal and monetary authorities on liquidity
management;
d) Continued use of the dual currency system; and
e) Normal to above normal rainfall which will dampen food prices.

Forward Guidance on Interest Rates
190. Consistent with the expected downward trend in inflation since the last
quarter of 2022, the Bank through the MPC will periodically review the

Jan-22
Feb-22
Mar-22
Apr-22
May-22
Jun-22
Jul-22
Aug-22
Sep-22
Oct-22
Nov-22
Dec-22
Jan-23
Feb-23
Mar-23
Apr-23
May-23
Jun-23
Jul-23
Aug-23
Sep-23
Oct-23
Nov-23
Dec-23
Month on Month 1.4%
Month on Month 1%
Month on Month 3%

Bank policy rates in sync with the expected inflation profile. The interest
rates on local currency deposits and loans will be guided by the implied
expected average annual inflation on the domestic currency.

191. Taking into consideration the implied month-on-month ZWL inflation for
2023, interest rates on local currency borrowings would fall between 4060% by the end December 2023, as shown in Figure 33.

Figure 33:Implied Interest Rate Path January-December 2023


192. The envisaged inflation and interest rate profile will support a stable
exchange rate path which is expected to move in line with monthly inflation
differentials between Zimbabwe and its trading partners.


Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Expected average Y-O-Y Inflation
Implied Interest Rate

SECTION EIGHT
CONCLUSION

193. The Bank expects the domestic economic outlook to remain positive
notwithstanding uncertainties around the global economic outlook. Against
this backdrop, the Bank shall remain committed to staying on course of a
tight monetary policy stance aligned to the inflation path to balance the need
to protect price stability and the country’s growth potential. In this context,
the policy measures in this Statement are expected to support and sustain the
current macroeconomic stability and economic resilience to global and
domestic shocks.

194. Going forward, the Bank and the MPC will remain resolute and alert to
global and domestic headwinds to proactively deal with any emerging
domestic inflation pressures in the near and medium term to ensure that the
current stability is sustained.

195. I, therefore, call upon all stakeholders to continue observing good business
ethics and pricing models to complement the Bank’s efforts to sustain price
and financial system stability which is critical for sustained and inclusive
economic growth and development.


I THANK YOU
JOHN PANONETSA MAN
GOVERNOR
GUDYA

R
E
S
E
R
V
E
B
A
N
K
O
F
Z
I
M
B
A
B
W
E
Reserve Bank of Zimbabwe
4BNPSBMachel Avenue
Box 1283)BSBSF
;JNCBCXF
Tel:


Email:
Reserve Bank of Zimbabwe
-FPQPME5BLBXJSB
Box 399 Bulawayo, Zimbabwe
Tel:

Email: