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MID-TERM MONETARY POLICY STATEMENT
RESTORING PRICE AND EXCHANGE RATE STABILITY
By
JOHN PANONETSA MANGUDYA
GOVERNOR
11 AUGUST 2022

TABLE OF CONTENTS

TABLE OF FIGURES
Figure 2: Distribution of Foreign Currency in the Auction of 26th July 2022 .... 13
Figure 16: Comparative Monthly Electronic Transaction Values and Volumes
Figure 17: RTGS Values and Volumes for the Six Months ended June 2022 and
Figure 18: Retail Payment Systems Interoperability for Jan to June 2021 and

LIST OF TABLES
Table 1: Willing-Buyer Willing-Seller (WBWS) Interbank Market Activities
Table 2: Total Foreign Currency Receipts for Jan – Jun 2022(USD Millions) .. 17

SECTION ONE
INTRODUCTION AND BACKGROUND

1.
This Monetary Policy Statement (MPS) is issued in terms of Section 46 of
the Reserve Bank of Zimbabwe Act [Chapter 22:15] (the Act). The Act
requires the Governor of the Reserve Bank of Zimbabwe (the Bank) to issue
a statement that evaluates prior period monetary policy measures and
outlines the monetary policy stance and policies for the subsequent six
months, including the motivation for any new policies.

2.
Accordingly, this Statement highlights the recent developments in monetary,
external and banking sectors as well as policy measures the Bank is
implementing in pursuit of price, exchange rate and financial system stability
which are the key mandates of the Bank. More importantly, the Statement
also outlines the monetary policy stance to be followed by the Bank in the
second half of 2022.

3.
Domestic economic growth has remained robust and is projected at 4.6% in
2022, down from the initial forecast of 5.5%. The downward revision was
necessitated by the continued global and domestic inflationary pressures,
global geopolitical tensions and the consequences of the ongoing global
warming and the COVID-19 pandemic.

4.
In order to address the domestic inflationary pressures mainly attributable to
the movement in the parallel foreign exchange premiums, Government and
the Bank implemented bold measures to deal with factors driving exchange
rate volatility and inflation. The measures announced by the President on 7

May 2022 managed to instill discipline and curb speculative behaviour,
particularly on the stock market.

5.
In addition, subsequent measures taken by the Bank to increase interest rates
and introduce gold coins as an alternative stable investment product for store
of value and mopping up excess liquidity from the economy have gone a
long way in preserving the value of the local currency, reducing liquidity in
the market and reducing foreign currency demand on the parallel market and
thus stabilising the exchange rate and prices.

6.
On its part, Government has taken steps to review its procurement approach
to minimise the practice of forward exchange rate pricing that was being
pursued by its suppliers of goods and services. The Bank applauds this move
by Government to deal with issues affecting exchange rate stability while at
the same time ensuring value for money.

7.
In the period ahead, monthly inflation, which is the most felt component of
price changes in the economy, is expected to continue to decelerate as
measures put in place by the Bank and Government to keep inflation under
check continue to bear fruit. However, annual inflation could increase in the
short term as a result of the lower base effect in 2021 and subsequently
decelerate in line with declining month-on-month inflation.

8.
The rest of the Statement is organised as follows: Section two carries an
assessment of the effectiveness of previous monetary policy measures;
Section three highlights the recent economic developments; Section four
focuses on financial sector developments; Section five highlights balance of

payments developments; Section six specifies the new monetary policy
stance for the next six months; Section seven provides the economic and
inflation outlook; and lastly Section eight concludes the Statement.

SECTION TWO
ASSESSMENT OF PREVIOUS MONETARY POLICY

9.
The first half of the year 2022 saw emerging inflationary pressures in the
economy driven by external and domestic factors. Government and the Bank
reacted by implementing bold fiscal and monetary policy measures to
stabilise the situation. As a result of the measures, month-on-month inflation,
which had increased to 30.7% in June 2022, decelerated to 25.6% in July
2022. The exchange rate has also largely stabilised during the month of July
2022 following the implementation of the tight monetary policy measures.

Temporary Suspension of Lending by Banks
10. Following the announcement by the President on 7 May 2022 to the effect
that far reaching measures to stabilise the economy were adopted, the Bank
temporarily suspended lending by banks in order to allow comprehensive
investigations by the Financial Intelligence Unit (FIU) into abuses of
commercial bank loan facilities by business entities.

11. The investigations by the FIU showed significant abuse of loan facilities by
borrowers through arbitrage, multi-dipping, borrowing on behalf of third
parties and diversion of foreign exchange obtained through the foreign
exchange auction system to parallel market activities.

12. The investigations exposed 15 entities as abusers of bank credit and resulted
in those entities being penalised. The investigations further revealed that
suppliers of goods and services to Government were also a major contributor
to the depreciation of the exchange rate on the parallel market as they were
using forward foreign exchange rates in the pricing of their goods and
services even after being paid by Government in advance. The continued
monitoring, tightening of regulations and imposition of punitive measures
against offenders by the FIU is expected to go a long way in reducing
speculative behaviour in the economy.

Bank Policy Rates
13. The Bank policy rates have been continuously reviewed since the beginning
of the year in line with exchange rate and inflation developments. The policy
rate was increased from 60% in January 2022 to 80% at the end of April
2022 and further to 200% on 24 June 2022. The increase in policy rates and
its alignment to the minimum lending rate has gone a long way in reducing
speculative borrowing and stabilising the exchange rate.

Medium Term Bank Accommodation (MBA) Facility
14. The Bank has maintained the Medium Term Bank Accommodation Facility
since November 2019 in order to support strategic productive sectors such
as grain production and SMEs. Ensuring self-sufficiency in strategic
products has become more critical in the wake of global supply disruptions
such as the COVID-19 pandemic, the Russia-Ukraine conflict and global
warming.

15. To curtail arbitrage, the MBA rate was reviewed from 40% in January 2022
to 50% in April 2022 and further to 100% on 24 June 2022. While the Bank
is cognisant that the hike in the MBA rate may negatively affect borrowing
by genuine productive entities, its alignment to the policy rate was crucial to
avoid arbitrage borrowing from other lending windows. The MBA window
remains active and available to support the productive sectors of the
economy. A cumulative total of ZW$8.0 billion has been disbursed under
the facility, with an outstanding balance of ZW$6.0 billion as of 22 July
2022. The MBA Facility has largely benefited the agriculture sector,
especially summer and winter cropping.

Micro, Small and Medium Enterprises (MSMEs) Facility
16. The facility was introduced in June 2021 during the Covid-19 pandemic to
support the working capital and capital expenditure needs of the MSMEs
sector. As at 22 July 2022, a total of ZW$986.6 million had been disbursed
to various beneficiaries through banks and microfinance institutions.

Statutory Reserves
17. Statutory reserve requirements continue to play a major role in the tight
monetary policy stance of the Bank by limiting the available resources for
credit creation. In this regard, the statutory reserve ratio for demand and call
deposits was kept at 10% whilst that of time deposits also remained
unchanged at 2.5% during the first half of 2022.
18. An increase in broad money saw statutory reserve balances increasing from
ZW$20.11 billion on 31 January 2022 to ZW$28.89 billion as of 22 July
2022.

Deposit Interest Rates
19. As part of measures to promote savings, the deposit rates for ZW$ savings
were reviewed upwards from 12.5% to 40% per annum, while time deposits
rates were increased from 25% to 80% per annum, effective 1 July 2022.

Foreign Exchange Market
20. To support an efficient market for foreign exchange, the Bank has moved to
eliminate the gap between the auction and the willing-buyer willing-seller
exchange rates. It is the Bank’s view that the willing-buyer willing-seller
exchange rate is a good indicator of the foreign exchange rate in the
economy. The parallel market exchange rates are to a large extent influenced
by speculative sentiments and forward pricing behaviour, especially by
providers of goods and services to Government.
21. Since the introduction of the auction system on 23 June 2020, the Bank has
successfully held 104 Main and 98 SME auctions, as of 26 July 2022. In
2022, the Bank allotted about US$834.7 million, representing about 91% of
the total bids submitted to the auction as of 26 July 2022.
22. The SMEs sector continues to receive a considerable amount of funds from
the auction system, with a share of about 17% in the first half of 2022,
compared to a share of 11% in the same period in 2021 as shown in Figure
1.

Figure 1: Foreign Exchange Auction Allotments in 2020-2022 (US$m)


23. The average number of bids per auction was about 1 450 per week during
the first half of 2022, lower than the average of 2 000 bids per week in the
fourth quarter of 2021. The reduction in the number of bids is attributable to
the introduction of the willing-buyer willing-seller foreign exchange trading
mechanism (with some applicants who used to rely on the foreign exchange
auction system now accessing foreign currency through that system) and
effective monitoring by banks and Exchange Control authorities.

24. To enhance market confidence, the Bank has cleared the backlog of all
allotted amounts in respect of Auctions FX94 to FX102 and is in the process
of settling the ring-fenced backlog from Main auctions 83 to 93, amounting
to US$169 million, with a view to clearing it within a short space of time.

25. The amounts that have been allocated at successive auctions have increased
over time for both the Main and SMEs auctions. A total amount of US$3.43

Jun-20
Jul-20
Aug-20
Sep-20
Oct-20
Nov-20
Dec-20
Jan-21
Feb-21
Mar-21
Apr-21
May-21
Jun-21
Jul-21
Aug-21
Sep-21
Oct-21
Nov-21
Dec-21
Jan-22
Feb-22
Mar-22
Apr-22
May-22
Jun-22
Jul-22
US$ million
Main FX Auction
SME Fx Auction

billion had been allotted at the auctions as at 26 July 2022, with US$2.93
billion having been allotted at the Main auction and US$498.07 million at
the SMEs auction.
26. Details of the weekly auction allotments are shown in Table 8.
Table 1: Foreign Exchange Auction Data as of 26 July 2022
Date
FX market
Week
Lowest
bid (LB)
Highest
bid (HB)
Weighted
Auction
Rate
(AR)
US$ 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
5-Jul-22
FX101/2022
358.0000 405.0000 379.2280
19,749,893.72
19,678,200.34
5-Jul-22
SMEFX95/2022
357.0000 405.0000 379.2280
3,747,679.66
3,714,582.77
12-Jul-22
FX102/2022
368.6400 424.0000 391.5339
19,506,514.99
19,506,514.99
12-Jul-22
SMEFX96/2022
366.0000 420.0000 391.5339
4,109,266.59
4,053,982.01
19-Jul-22
FX103/2022
382.0000 450.0000 403.4048
19,685,492.47
19,161,542.54
19-Jul-22
SMEFX97/2022
385.0000 442.0000 403.4048
3,867,264.37
3,762,731.31
26-Jul-22
FX104/2022
399.0000 490.0000 416.2890
19,865,492.03
19,787,360.03
26-Jul-22
SMEFX98/2022
398.0000 500.0000 416.2890
4,430,341.14
4,321,097.28
2022 TOTAL


920,098,445.65
834,686,617.86
GRAND TOTAL


3,597,041,931.11
3,431,067,430.81


27. The productive sectors of the economy continue to receive most of the funds
allotted at foreign currency auctions, with more than 65% of the allotments
going towards supporting those sectors. As at 26 July 2022, 41% of the total
allotments financed raw materials, whilst 22% funded capital goods such as
plant, machinery and equipment with 3% being allocated to fuel, electricity
and gas.

Figure 2: Distribution of Foreign Currency Allotments at Auctions as
of 26 July 2022

Source: Reserve Bank of Zimbabwe, 2022

Willing-Buyer Willing-Seller Foreign Exchange Trading System
28. The Bank introduced the willing-buyer willing-seller foreign exchange
market trading system on 12 April 2022, in line with Government policy to
move towards a more liberalised exchange rate. As at 29 July 2022 the
cumulative foreign exchange purchases and sales through the system stood
at US$18.7 million and US$17.1 million respectively, resulting in cumulative
banks’ holdings of about US$1.6 million, as shown in Table 2.


Raw Materials,
41%
Machinery and
Equipment, 22%
Retail and
Distribution, 9%
Consumables ,
12%
Medicals and
Chemicals, 6%
Services, 7%
Fuel, Electricity
and Gas, 3%

Table 2: Willing-Buyer Willing-Seller Interbank Market Activity 2022
(US$)
Transaction
As at 29 July 2022
Cumulative Purchases by banks
18,685,552.90
Cumulative Sales by banks
17,090,708.96
Holdings by banks
1,594,843.94

29. The average interbank exchange rate as of 28 July 2022 was
US$1:ZW$443.88, a depreciation of about 50% from US$1:ZW$220.09 on
12 April 2022. During the first half of 2022, the Bank sold a total of US$16.5
million to bureaux de change for onward sale to the public to cover small
transaction requirements such as travel and medicines.

Mosi-oa-Tunya Gold Coin Trading
30. Following the resolution by the Monetary Policy Committee on 24 June 2022
to introduce gold coins into the Zimbabwean market as an alternative stable
investment product for value preservation, the Bank released the first batch
of 2000 gold coins into the market on 25 July 2022. The gold coins are being
sold through authorised dealers, the Bank and its subsidiaries namely Aurex
(Private) Limited and Homelink (Private Limited. The gold coins have the
following specifications: -
i.
Denomination -1 Oz (for the time being);
ii.
Material - Gold;
iii.
Purity - 22 karats (91.67%);
iv.
Diameter - 32 mm;
v.
Weight - 33.93g;
vi.
Shape - Round;

vii.
Edge Type – Reeded, with serial number engraved;
viii.
Quality Proof; and
ix.
Thickness - 2.63mm.

31. The gold coin, which is sold with an accompanying bearer certificate, has
the following characteristics:
i.
Liquid Asset Status;
ii.
Prescribed Asset Status;
iii.
Can be used as collateral;
iv.
Tradable; and
v.
Can be bought back (after 180 days) at the instance of the holder.

32. The price of the gold coins is determined by the London Bullion Market
Association (LBMA) PM Fix gold price plus a margin of 5% to cover the
production and distribution costs. The price of the gold coin on the date of
initial release, 25 July 2022, was US$1,823.80 or ZW$805,745.35 in local
currency. Fluctuations will be experienced on the US$ and ZW$ prices as a
result of the movement in the international price of gold and the exchange
rate.
33. As at 10 August 2022, 4475 gold coins had been sold realising ZW$3.7
billion of which 90% was paid in local currency and the balance in foreign
currency, and evenly distributed throughout the agents.

34. The high demand for the gold coins will assist in mopping up liquidity from
the market and thus strengthen the demand and enhance the value of the local
currency. The Bank shall continue to release additional gold coins into the
market on an ongoing basis in line with demand.

Foreign Exchange Mobilisation
35. The Bank is working with its local and external partners to unlock offshore
lines of credit to support the country’s foreign currency needs. Letters of
Credit (LCs) issuances under the Afreximbank US$150 million facility, as
well as bank facilities continued to bridge the balance of payments gap for
the country through providing a critical liquidity lifeline to the local industry.
LCs worth about US$145 million were issued during the first seven months
of 2022.
36. The Bank has also approved around US$70 million worth of LCs which are
in the pipeline for the importation of essential commodities such as raw
materials, plant and equipment, wheat, fertilisers and agro-chemicals.

Foreign Currency Receipts
37. Total foreign currency receipts for the period 1 January to 30 June 2022
amounted to US$5.45 billion compared to US$4.07 billion received during
the same period in 2021, representing a 33.6% increase. This shows a
significant growth in receipts during the first half of the year. Table 3 shows
the foreign currency receipts by source.

Table 3: Total Foreign Currency Receipts for January – June 2022 (USD
Millions)
Type of Receipt
Year 2022
Year 2021
% Change
Export Proceeds
3,467.40
2,354.20
47.3%
International
Remittances
Diaspora
Remittances
797.27
650.50
22.6%
NGOs
574.75
462.62
24.2%
Loan Proceeds
428.35
505.15
-15.2%
Income receipts
73.77
79.59
-7.3%
Foreign Investment
103.89
22.35
364.8%
Total
5,445.43
4,074.41
33.6%
Source: Exchange Control Records (2022)


International Remittances
38. International remittances comprise transfers by Zimbabweans in the
Diaspora and International Organisations. As at 30 June 2022, total
international remittances amounted to US$1.372 billion, an increase of 23%
from the US$1.113 billion recorded during the same period in 2021. Of the
total amount, diaspora remittances amounted to USD797 million, a 23%
increase from US$650 million received during the same period in 2021.

39. International remittances received through the normal banking system on
behalf of International Organizations amounted to US$575 million, an
increase of 24% from US$463 million recorded during the same period in
2021.

Foreign Payments Performance
40. For the first half of 2022, banks processed foreign payments amounting to
US$3.78 billion. This represents a 19% increase in foreign payments from
US$3.19 billion recorded for the same period in 2021. The upward trajectory
in foreign payments was largely on account of increased global prices for
fuel and electricity. Table 4 shows foreign payments, by category, for the
same period in 2021 and 2022.

Table 4: Foreign Payments from January to June 2021/2022 (US$ Millions)
Category
Year

Year

%
Variance
Contribution

Contribution

Merchandise Imports (excl. energy)

- Consumption & Manufactured Goods

O/W Food Items

Beverages

Medical Goods/Pharmaceuticals

Manufactured Goods

- Capital Goods

- Intermediate Goods

Energy (Fuel & Electricity)

- Fuel

- Electricity

Service Payments

- Technical, Professional & consult

- Software

- Other (tourism, education, freight etc)

Income Payments (Profits, Dividends)

- Dividends

- Interest Payments

- Other (Salaries, Expatriates, Rental)

Capital Remittances (outward)

- External Loan Repayments

- Disinvestments

- Foreign Investment

Other Payments (International Cards &
Refunds

Total

Source: Exchange Control Records (2022)

SECTION THREE
RECENT ECONOMIC AND INFLATION DEVELOPMENTS

41. Global growth prospects have remained fragile owing to geo-political
tensions, rising inflation and tighter financial conditions, global warming
and the COVID-19 pandemic. In its July 2022 World Economic Outlook
Update, the IMF revised global growth downwards to 3.2%, from the initial
estimate of 4.9% in January 2022, with prospects in the short-term remaining
gloomy and highly uncertain.

42. Global prices of commodities, for which Russia and Ukraine are key
exporters, have remained significantly higher in 2022 than in the previous
year. Food prices, particularly wheat, are projected to significantly increase
in 2022, reaching an all-time high in nominal terms owing to the ongoing
Russia-Ukraine conflict.

43. Precious metal prices rose in the first half of 2022, although at a slower pace
than in the previous year, owing to uncertainties around the ongoing conflict
in eastern Europe and subsequent sanctions imposed on Russia, which
developments have boosted the appeal of gold as a safe-haven. Furthermore,
growing concerns over high inflation have also prompted investors to shift
from riskier assets to precious metals as a safe haven. However, the gains in
price increases are being moderated by the U.S Federal Reserve Bank’s
hawkish monetary policy stance.

44. On the domestic front, growth prospects for 2022 remained robust at 4.6%
compared to the initial projection of 5.5%, largely due to the
underperformance of the 2021/22 agricultural season. Growth for 2022 will
mainly be driven by mining and construction activities and accommodation
and food services. The anticipated increase in international commodity
prices is also expected to further support strong growth in the mining sector,
particularly, in gold, diamond and PGMs sub-sectors.

45. In addition, anticipated growth in tourism due to recovery in international
tourism following the lifting of global Covid-19 mandatory quarantine
requirements and the resumption of meetings, incentives, conferences and
exhibitions (MICE) is expected to spur growth in the sector in 2022.

46. Downside risks to economic activity in 2022 remain due to the impact of the
ongoing Russia –Ukraine conflict, particularly its effect on food and energy
prices and their transmission to the domestic economy.

Gold Deliveries
47. Gold deliveries to Fidelity Gold Refinery (Private) limited (FGR) for the
period 1 January 2022 to 30 June 2022 were 15,972.52 kgs, compared to
9,954.67 kgs delivered during the same period in 2021. This represents a
year-to-year variance (increase) of 60.45% or 6,017.85 kgs. Table 5 shows
the gold deliveries as at 30 June 2022.
Table 5: Gold Deliveries (Kgs) to FGR - Jan 2021 to June 2022


Year 2021


Year 2022


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

Feb

March

April

May

June

July

August
1,034.54
1,913.49
2,948.03


September
1,004.51
2167.36
3,171.86


October
1,005.12
2046.79
3,051.91


November
1,075.20 2,261.30

3,336.50


December
1011.83
3330.18

4,342.01


TOTAL


48. Total deliveries during the first half of 2022 were 60.45% or 9.954.67 kgs
more than what was achieved over the same period in 2021. At this rate, the
Bank’s projection of delivery 35 000 tonnes is within reach. To ensure that

the set target is achieved, there is need to maintain the incentives and
complement them with increased monitoring of gold producers to reduce
leakages into the parallel market.

Inflation Developments

49. The economy has been experiencing inflationary pressures since the
beginning of 2022. Headline inflation increased from 60.7% in January 2022
to 256.9% in July 2022. This was partly driven by external factors,
particularly the Russia-Ukraine conflict, which impacted negatively on
import prices of raw materials, food and liquid fuels.

50. On the domestic arena, adverse inflation expectations and exchange rate
depreciation were also some of the major drivers of inflation in the first half
of 2022.

Figure 3: Annual Inflation

Source: ZIMSTAT


51. The recent stabilisation measures have, however, resulted in the slowdown
in monthly inflation, from 31.7% in June to 25.6% in July 2022. In addition,
the shift towards a more liberalised exchange rate, through the introduction
of the willing-buyer/willing-seller foreign exchange trading system in May
2022, has significantly reduced the parallel market exchange rate premium,
from about 140% to the current 60% as at the end of July 2022.

RESERVE MONEY DEVELOPMENTS
52. The Bank has maintained its tight monetary stance to control inflationary
and exchange rate pressures emanating from global and domestic shocks.
Reserve money stock amounted to ZW$33.55 billion as at 30 June 2022
largely due to increases in statutory reserves. Since the beginning of the
second quarter of 2022, statutory (or required) reserves have been increasing
in response to significant build-up in banking sector deposits. The increase
in statutory reserves is in line with the thrust of tightening monetary policy

Food Inflation
Non Food Inflation
All Items

as the reserve balances are sterilised at the Bank and are not available for
lending by banks.

53. As at end of June 2022, more than 78% of the stock of reserve money was
in the form of statutory reserves, while currency issued by the Bank and
banks’ liquidity positions at the RBZ (RTGS balances) constituted the
balance, as shown on Figure 4.
Figure 4: Components of Reserve Money as at end of June 2022

Source: RBZ
54. Excess reserves (RTGS balances at the Bank) declined from 55.06% in June
2021 to 0.34% in June 2022, largely reflecting tighter liquidity conditions as
a result of mopping up operations and issuance of non-negotiable
certificates of deposits (NNCDs).

55. The Bank continued to implement a conservative monetary targeting
framework to contain money supply growth and avert attendant pressures on
exchange rate and inflation. As a result, quarter on quarter reserve money
Currency Issued
21.44%
Required Reserves
78.22%
Excess Reserves
0.34%

growth targets for 2021 were achieved and progressively reduced from
22.5% during the first two quarters of 2021, to the current 0% growth. The
downward revision was necessitated by the need to further tighten monetary
policy in response to resurgence of inflationary and exchange rate pressures.

MONETARY DEVELOPMENTS
56. Broad money increased by 15.25% to ZW$1 119.70 billion in June 2022,
compared to ZW$973.50 billion recorded in May 2022. The increase
reflected an expansion of ZW$98.75 billion and ZW$49.40 billion in foreign
currency deposits and local currency component, respectively.

57. The money stock was comprised of foreign currency deposits, 58.76%; local
currency deposits, 40.93%; and currency in circulation, 0.31%.

58. Figure5, shows monetary developments for the period June 2021 to June
2022.

Figure 5: Monetary Developments

Source: Reserve Bank of Zimbabwe, 2022

59. Broad money grew by 269.62% on an annual basis, an increase from
203.48% realised in June 2021. The local currency component of broad
money grew by 172.77% while foreign currency deposits increased by
392.32%, also reflecting movements in the exchange rate and increase in
exports.


-

1,000
1,200
ZW$ Billion
Local currency deposits
Foreign currency deposits
Currency in Circulation

Figure 6: Money Supply Growth and Inflation

Source: Reserve Bank of Zimbabwe, 2022

60. The annual growth in broad money of 269.62% was largely due to increases
of 351.69% and 342.21% in credit to the private sector and net claims on
Government, respectively. Net credit to Government included drawdowns
of Special Drawing Rights (SDR) reserves.

STOCK MARKET DEVELOPMENTS

Zimbabwe Stock Exchange (ZSE)
61. During the second quarter of 2022 bullish sentiments characterised the
Zimbabwe Stock Exchange (ZSE). Trading activity was skewed towards
medium to small counters associated with high trading volumes. This
resulted in increases in all the major indices, with the Medium Cap, All
Share, Small Cap, Top 15 and Top 10 indices increasing by 51.35%, 24.80%,
23.08%, 18.99% and 17.16%, respectively, to close at 39 627.35 points,

Feb-18
Apr-18
Jun-18
Aug-18
Oct-18
Dec-18
Feb-19
Apr-19
Jun-19
Aug-19
Oct-19
Dec-19
Feb-20
Apr-20
Jun-20
Aug-20
Oct-20
Dec-20
Feb-21
Apr-21
Jun-21
Aug-21
Oct-21
Dec-21
Feb-22
Apr-22
Jun-22
Broad Money Growth
Annual Inflation
Private Sector

19791.94 points, 513 602.97 points, 13 721.95 points and 12 273.75 points,
respectively.

62. The resource index also gained 77.35% during the same period to close at
20 021.24 points, compared to 11 289.34 points recorded in the previous
quarter. On a year-on-year basis, the Top 10, Top 15, All Share, Small Cap
and Medium Cap indices increased by 289.09%, 275.03%, 219.49%,
170.13% and 129.43%, respectively, from 3 154.44 points, 3 658.89 points,
6 194.88 points, 190 131.50 points and 17 272.09 points recorded in June
2021, respectively.

63. Figure 7 shows the developments of the ZSE All Share, Top 10 and Mining
Indices for the period June 2021 to June 2022.
Figure 7: ZSE All Share, Top 10 and Mining Indices

Source: Zimbabwe Stock Exchange 2022


All Share Index
Top 10 Index
Mining Index

Market Turnover
64. Owing to limited investment options available on the money market, the
cumulative volume and value of shares traded increased by 85.14% and
71.86% to 660.11 million shares and ZW$34.15 billion, respectively.
Figure 8: ZSE Market Turnover (ZW$ millions)

Source: Zimbabwe Stock Exchange, 2022
65. However, foreign investor participation, as measured by its contribution to
value of shares traded, declined to 3.26%, compared to 7.51% recorded in
the first quarter of 2022. Concomitantly, net foreign position worsened to
negative ZW$4 437.44 million, from negative ZW$325.07 million recorded
during the quarter ended 31 March 2022.

Market Capitalisation
66. The positive trading exhibited on the local bourse in the second quarter of
2022 resulted in the ZSE gaining ZW$474.43 billion, or 24.15% worth of
capitalisation to close at ZW$2 439.17 billion. On a year on year basis,
market capitalisation increased by 227.33%, from ZW$745.18 billion
recorded in the quarter ending June 2021.


Block Trade: Meikles Ltd (122.90 million
shares, worth ZW$11.55 billion
Block Trade: RTG Ltd (526.03
million shares, worth ZW$2.9
billion

Victoria Falls Stock Exchange (VFEX)

67. During the second quarter of 2022, the Victoria Falls Stock Exchange
(VFEX) traded in a positive trajectory. This resulted in the VFEX All Share
Index gaining 7.72%, from 107.12 points recorded in the previous quarter to
115.39 points in the second quarter ending June 2022 as shown in Figure 9.
Figure 9: Victoria Falls Stock Exchange ASI

Source: Victoria Falls Stock Exchange, 2022

Market Capitalisation

68. Reflecting the positive sentiments on the VFEX, market capitalisation
increased by US$19.59 million or 7.72% during the second quarter, from
US$0.25 billion recorded in the previous quarter to US$0.27 billion.


30-Jan-22
28-Feb-22
31-Mar-22
30-Apr-22
31-May-22
30-Jun-22

SECTION FOUR
CONDITION AND PERFORMANCE OF THE BANKING SECTOR

69. The banking sector remained safe and sound with demonstrable capacity for
increased support for the recovery of the economy, notwithstanding the
challenges in the operating environment.

70. As at 30 June 2022, the banking sector comprised 13 commercial banks, five
(5) building societies, and one (1) savings bank. In addition, there were 183
credit-only microfinance institutions, eight (8) licensed deposit-taking
microfinance institutions and four (4) development financial institutions
under the purview of the Bank.

Financial Soundness Indicators
71. Key banking sector financial soundness indicators remained satisfactory as
depicted in Table 6.

Table 6: Financial Soundness Indicators
Key Indicators
Benchmark Dec – 20
Jun – 21
Dec - 21
Jun- 22
Total Assets
-
$349.59bn
$486.45bn
$762.96bn
$1.94 trillion
Total Loans &
Advances
-
$82.41bn
$142.79bn
$229.94bn
$603.14bn
Net Capital Base
-
$53.18bn
$72.90bn
$122.85bn
$349.48bn
Core Capital

$40.75bn
$53.66bn
$100.83bn
$284.74bn
Total Deposits
-
$204.13bn
$304.95bn
$476.35bn
$1.12 trillion
Net Profit
-
$34.24bn
$15.09bn
$59.29bn
$181.25bn
Return on Assets

Return on Equity


Key Indicators
Benchmark Dec – 20
Jun – 21
Dec - 21
Jun- 22
Capital Adequacy Ratio

Tier 1 Ratio

Loans to Deposits Ratio

NPLs Ratio

Liquidity Ratio

Source: Reserve Bank of Zimbabwe, 2022

Banking Sector Capitalisation
72. As at 30 June 2022, the banking sector was adequately capitalised. The
banking sector average capital adequacy and tier one ratios were 33.87% and
18.84%, respectively, and above the regulatory minima of 12% and 8%,
respectively.

73. Aggregate banking sector core capital increased by 179.29% from $100.83
billion as at 31 December 2021, to $284.74 billion as at 30 June 2022.
Growth in core capital was mainly attributed to capitalisation of retained
earnings.

74. Banking institutions continue to implement various capitalisation initiatives
to bolster their capital positions including mergers, organic growth of capital
and capital injection by shareholders. The Bank is monitoring progress
periodically to ensure on-going compliance with minimum capital
requirements.

Banking Sector Loans and Advances
75. Aggregate banking sector loans and advances increased 2.64 times from
ZW$229.94 billion as at 31 December 2021 to ZW$603.14 billion as at 30

June 2022, largely attributed to the translation of foreign currency
denominated loans.

76. As at 30 June 2022, foreign currency denominated loans constituted 65.87%
of total banking sector loans, an increase from 36.87% reported as at 31
December 2021.
77. During the period under review, financial intermediation as measured by
loans to deposit ratio, improved from 48.27% recorded as at 31 December
2021, to 53.69% as at 30 June 2022.
78. The banking sector continued to support the productive sectors of the
economy as evidenced by loans to the productive sectors constituting
76.29% of total loans as at 30 June 2022, as shown in Figure 10.

Figure 10: Sectoral Distribution of Loans as at 30 June 2022

Source: Reserve Bank of Zimbabwe

Asset Quality
Consumptive
25.50%
Other
3.38%
Agriculture
26.43%
Manufacturing
10.03%
Commercial
6.97%
Mining
7.52%
Distribution
11.65%
Construction
0.71%
Transport
1.78%
Communication
0.07%
Financial
0.74%
Mortgage
5.21%
Productive
76.29%

79. Banking sector asset quality remained satisfactory. As at 30 June 2022, the
average non-performing loans (NPLs) to total loans ratio for the banking
sector was 1.50%, against the generally acceptable international threshold of
5%.
80. Figure 11 shows the declining trend in the level of non-performing loans to
total loans ratio (NPLs ratio) from December 2017 to June 2022.

Figure 11: Trend in Non- Performing Loans

Source: Reserve Bank of Zimbabwe
81. Banking institutions continue to enhance and adopt sound credit risk
management systems and internal controls to minimise potential nonperforming loans against the background of a challenging operating
environment.
82. The Bank will continue monitoring asset quality on an ongoing basis to
ensure healthy balance sheets of banking institutions.


NPL Ratio
Benchmark

Banking Sector Profitability
83. The banking sector recorded un-audited aggregate profits of ZW$181.25
billion for the half-year ended 30 June 2022, a 12fold increase from
aggregate profits of ZW$15.09 billion reported in the corresponding period
in 2021.
84. Growth in banking sector income was largely spurred by non-interest
income, which constituted 79.03% of total income [2021: 51.81%]. Noninterest income comprised mainly revaluation gains from investment
properties (25.77%), fees and commissions (21.47%), as well as translation
gains on foreign currency denominated assets (20.38%).
85. The income mix for the sector is depicted in Figure 12.
Figure 12: Banking Sector Income Mix as at 30 June 2022

Source: Reserve Bank of Zimbabwe
Interest Income from
Loans Advances and
Leases
18.22%
Interest
Income on
Balnces with
Banking
Institutions
0.37%
Interest Income On
Investments ans
Securities
2.38%
Foreign Exchange
7.10%
Fees and Commission
21.47%
Other Non Interest
Income
50.45%

86. During the half year period to 30 June 2022, interest income from loans and
advances contributed 18.22% compared to 40.96% of the total income in
June 2021.

Banking Sector Deposits and Liquidity
87. The average prudential liquidity ratio was 62.16% as at 30 June 2022,
against the minimum regulatory requirement of 30%, largely reflecting high
stock of liquid assets in the sector. The trend in the liquidity ratio from 31
December 2018 to 30 June 2022 is shown in Figure 13.

Figure 13: Prudential Liquidity Ratio Trend

Source: Reserve Bank of Zimbabwe

88. Total deposits increased from ZW$476.35 billion as at 31 December 2021
to ZW$1.12 trillion as at 30 June 2022.


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

Sustainability
89. Fostering sustainability has become critical in the changing landscape for
the banking sector, following a realisation that strong and resilient banking
institutions contribute meaningfully to sustainable economic development
and attainment of Sustainable Development Goals (SDGs) by 2030.
90. The National Development Strategy (NDS) 1 is very specific on adoption of
the sustainability standards, as one of the key pillars for promoting financial
sector stability in Zimbabwe and as such, banking institutions are
encouraged to embrace and adopt sustainable banking practices.
91. The Bank continues to work closely with all financial institutions in the
implementation of the Sustainability Standards & Certification Initiative
(SSCI) being driven by the European Organisation for Sustainable
Development (EOSD). The pilot participating institutions have registered
significant progress in comprehending the key pillars of SSCI.

Sustainability and Climate Related Risks
92. In line with the Bank’s February 2022 Monetary Policy Statement, banking
institutions were required to embed sustainability and climate related risks
in their corporate governance and risk management frameworks and
systems.
93. The Bank has to date, received responses by banking institutions regarding
measures taken and progress being made in incorporating sustainability and
climate related risks into their operations and governance frameworks.
94. A review of the submissions by banking institutions indicates that some
banks have made progress through development of sustainability
frameworks and related policies, reconstitution of board committees and

amendment of terms of reference for committees charged with sustainability
issues and risks.
95. It was however, noted that, there is still scope to enhance the adoption of
sustainability principles across the sector as some institutions still lack the
perspective of a holistic approach to sustainability, only focusing on climate
related issues.
96. In line with the need to enhance sustainability supervision and regulation
and to keep pace with the shift towards sustainable banking practices, the
Bank will continue to engage the financial institutions and provide the
necessary guidance.

Credit Infrastructure

Credit Registry
97. The sustained availability and growth of the Credit Registry System
continues to play a critical role in provision of credit and effective
management and ongoing monitoring of credit in the sector.
98. The Credit Registry System registered a total of 1,126,411 enquiries as at 30
June 2022, up from 980,187 as at 31 December 2021 reflecting increased
usage as the adoption of the Credit Registry System improves over time. The
trend in inquiries from 2017 to June 2022 is shown in Figure 14.

Figure 14: Trend of Inquiries for 2017- June 2022

Source: Reserve Bank of Zimbabwe

99. The Credit Registry had 541,488 active loan contracts as at 30 June 2022,
with individuals’ records accounting for 97.93% of the records.
100. Gender distribution of loans is generally skewed towards male borrowers
who constituted 68.31% while female borrowers constituted 31.69% of loan
contracts in the Credit Registry.
101. The Credit Registry database indicates that only 6.86% of total loans granted
to female borrowers were delinquent compared to 7.27 % for male
borrowers, as shown in Figure 15.


Jun-22
Number of Inquiries

Figure 15: Percentage of Delinquent Loan Contracts by Gender

102. The Credit Registry has commenced engagements with microfinance
institutions to bring them on board as data providers. It is anticipated that
microfinance institutions data will further enrich and broaden the scope of
credit registry database.

Collateral Registry
103. The Bank is targeting to conduct the final pilot testing of the Collateral
Registry System with stakeholders during the month of August 2022. The
Collateral Registry system is expected to centralise the database of movable
assets accepted by banks and MFIs as collateral for secured loans. The new
system will facilitate access to credit and encourage economic activity and
contribute towards stimulating growth to the various economic sectors.

Microfinance Sector Capitalisation
104. As at 30 June 2022, all the seven (7) operating deposit taking microfinance
institutions (DTMFIs) were at various stages of capital raising initiatives
towards compliance the new minimum capital requirement of ZW$
equivalent to US$5 million.

Male
Female

105. The compliance date for deposit-taking microfinance institutions was
extended to 31 December 2022, and the institutions are required to submit
quarterly reports on the capitalization initiatives and strategies to meet the
new minimum capital requirements.
106. The aggregate core capital for the DTMFI sub-sector was $14.31 billion as
at 30 June 2022, up from $1.43 billion as at 31 December 2021, largely
driven by fresh capital injections, as well as organic growth.

DTMFI Deposits
107. The DTMFIs) registered a 53% increase in total deposits, from $908.50
million in December 2021to $1.39 billion during the first half of 2022. The
average prudential liquidity ratios remain high above the prudential
requirement of 30%, indicating the cautious approach the sub-sector has
been taking towards lending. There is therefore scope for the sub sector to
enhance lending and support the financing needs of MSMEs.
Profitability and Sustainability
108. Aggregate net profit for the microfinance sector for the period ended 31
March 2022 was $1.72 billion, up from $596.71 million for the comparative
period in 2021. The significant increase in profitability was mainly driven
by interest income buoyed by a 21.70% growth in loan portfolio, as well as
cost containment measures.
109. The sector remains operationally self-sufficient as reflected by the
operational self-sufficiency (OSS) ratio of 220.75% as at 31 March 2022, up
from 210.09% in December 2021 against the international benchmark of
100%.

Lending in Foreign Currency by Microfinance Institutions
110. In an effort to facilitate improved access and usage of foreign currency by
the low income and vulnerable but economically active communities and
their micro and small enterprises, the Bank has been approving applications
by microfinance institutions to lend in foreign currency.
111. Microfinance institutions have been urged to ensure that they strengthen
their Know Your Customer and risk management systems to ascertain the
source of foreign currency for loan repayments.
112. As at 30 June 2022 a total of 44 microfinance institutions, comprising 42
credit-only microfinance institutions, and two (2) deposit-taking
microfinance institutions, were authorised to lend in foreign currency. As at
30 June 2022, the authorised institutions provided access to foreign currency
loans to 31,173 borrowers, amounting to US$5,830,471.03 for various
productive projects.

Financial Inclusion Strategy
113. The MSME and the Consumer FinScope Surveys, which had been running
concurrently have now been completed. The preliminary results for both
surveys indicate that notable progress has been made towards closing the
financial exclusion gap among the vulnerable groups, namely, women,
youth, micro, small and medium enterprises, and the rural and small-scale
farmers.
114. The progress and milestones achieved under the National Financial
Inclusion Strategy number I (NFIS I) are largely attributed to the various
strategies implemented by the Bank and are a clear demonstration of impact
of collaborative efforts among the various financial inclusion implementing
partners.

115. The results of the FinScope surveys will be used to fine-tune the strategies
under NFIS II whose main objective is to empower all economically active
Zimbabweans and facilitate building of resilient and sustainable livelihoods
through not only access to, but usage of quality, affordable and appropriate
financial services on a sustainable basis.
116. In this regard, collaboration among stakeholders, including financial sector
regulators, financial institutions, government departments and ministries,
private sector and development partners, will be enhanced under NFIS II to
ensure financial inclusion contributes to the attainment of an Upper MiddleIncome economy by 2030.
117. The National Financial Inclusion Strategy II is expected to be launched in
the third quarter of 2022 after incorporating the results of the two FinScope
Surveys.

Cyber Resilience
118. The Bank conducted the inaugural annual cybersecurity maturity
assessments in February 2022 focusing on banks’ preparedness to prevent,
detect, contain and respond to threats to information assets and understand
the vulnerability area and the current initiatives to close any gaps.
119. The assessment noted a wide spectrum of initiatives in the sector to address
cyber governance, protection and detection gaps. The review also noted the
scope for banking institutions to continue to strengthen response, resumption
and recovery mechanisms if a cyberattack were to occur.
120. Against this background and in view of the evolving cyber threat landscape,
the Bank will enhance its Cyber Risk Management Framework during the
last half of 2022 to provide clear guidance on cyber governance expectations

with emphasis on threat information sharing, testing, resolution and recovery
mechanisms.

Cloud Computing
121. Over the last few years the Bank has noted the banking sector extensively
using outsourcing as a means for reducing costs and achieving certain
strategic objectives, particularly in the cloud banking and computing area.
This position results in banks being exposed to various risks including
strategic risk, reputation risk, compliance risk, operational risk and legal
risk.
122. In this regard, the Bank shall develop an outsourcing prudential standard to
provide guidance to banks to adopt sound risk management practices for
effective oversight, due diligence and management of risks arising from such
outsourcing activities.
123. At a minimum, the guidelines will emphasise the need for an outsourcing
strategy, governance and risk management as well as relevant policies and
procedure manuals. Institutions shall be expected to conduct thorough due
diligence reviews with the assistance of qualified auditors, as applicable.
124. The guidelines shall be informed by the Data Protection Act [Chapter 11:12]
and best practices and standards across the global financial system.

NATIONAL PAYMENT SYSTEMS
125. During the period under review, the value of digital payment systems grew
by 233% compared to the same period of 2021, whilst volumes decreased
by 13%, as shown in Figure 16.

Figure 16: Comparative Monthly Electronic Transaction Values and
Volumes for Six Months Ended June 2021/2022


Zimbabwe Electronic Transfer and Settlement Systems (ZETSS -
RTGS)
126. During the first half of 2022, the highest growth in electronic payments
occurred on the high value system (RTGS) with 6.7 million transactions
valued at ZW$6.2 trillion, representing increases of 238% and 17% in value
and volume, respectively, compared to the same period in 2021.


Jan
Feb
Mar
Apr
May
Jun
Millions
Trillions $ZWL
Vals 2021 LHS
Vals 2022 LHS
Vols 2022 RHS
Vols 2021 RHS

Figure 17: RTGS Values and Volumes for the Six Months ended June
2022/2021


Interoperability
127. The retail payment systems interoperability focuses on the direct transfers
processed through mobile, internet, POS, and ATM platforms integrated into
the national switch.

128. The cumulative interoperability transactional values increased by 231% to
ZW$442 billion during the period January to June 2022 compared to the
same period in 2021. Volumes, on the other hand, grew by 15% to 79 million
during the period under review as shown in Figure 18.

Jan
Feb
Mar
Apr
May
Jun
Millions
Trillions $ZWL
Vals 2021 LHS
Vals 2022 LHS
Vols 2022 RHS
Vols 2021 RHS

Figure 18: Retail Payment Systems Interoperability for January to
June 2021/2022


Payment System Compliance Issues

129. In view of the heightened digitalisation and increased interconnectivity
between systems and institutions, cyber risk rises and creates potential threat
to domestic financial stability. In this regard, the Bank has ensured that the
SWIFT Customer Security Controls Framework (CSCF) are being
implemented under the Swift Customer Security Programme. Eighteen
banks are already fully compliant with the CSCF while 10 are partially
compliant.

130. Under the Swift ISO 20022 Migration, an international standard for
replacing the payments messages by SWIFT for all banks worldwide, the
local market is expected to start the migration of SWIFT cross-border
transactions by 30 November 2022 with a parallel run up to November 2025,
after which the current MT messages will be phased out.

-

Jan
Feb
Mar
Apr
May
Jun
MILLIONS
BILLIONS
Vals 2021 LHS
Vals 2022 LHS
Vols 2021 RHS
Vols 2022 RHS

131. Compliance with the Euro Visa- Mastercard (EMV) chip technology now
stands at 49% for cards, 63% for ATMs and 56% for POS machines. The
Bank urges all payment systems providers and participants to work towards
full EMV compliance to reduce fraud risk and increase security for the
transacting public.


132. Under the Risk-Based AML–CFT Framework, the Bank continued to
enforce a risk-based approach on payment system providers and participants,
by ensuring that those entities and products presenting the highest risks
received a proportionately higher level of oversight/supervision.

133. The Bank requires that mobile money operators fully comply and enforce
anti-money laundering and counter-financing of terrorism measures. Board
involvement in AML/CFT issues is critical.

FINTECH DEVELOPMENTS
134. The Bank approved the admission of two financial technology firms into the
Fintech Regulatory Sandbox (the Sandbox) namely Llyod Crowd Funding
and Uhuru Innovative Solutions that are providing solutions in capital
raising and money transfer, respectively. Llyod Crowd Funding has
commenced its Sandbox operations and will test for a period of 12 months
up to May 2023 while Uhuru Innovative Solutions will soon commence
regulatory testing.

135. The initiation of regulatory testing is a signal of the Bank’s commitment to
promoting responsible innovation and the results are expected to provide the

Bank with critical evidence in the formation of an appropriate regulatory
framework for financial technology in the country. The Bank expects to
embark on regulatory testing with other promising Sandbox applications in
the near future.

136. Registrations on the Fintech Regulatory Sandbox continue to be dominated
by the technology sector. Meanwhile, applications to carryout sandbox
testing are largely focused on financial inclusion products, retail payments
and equity crowd funding which account for more than half of sandbox
applications.

Figure 19: Sectors of Registered Fintech Portal Users

Source: Reserve Bank of Zimbabwe, 2022

Banking
7%
Capital Raising
7%
Investment
management
6%
Lending
4%
Other
12%
Payments
19%
Savings and
Deposits
1%
Software and
Systems
Development
44%

Figure 20: Distribution of Applications to Sandbox


SECTION FIVE
BALANCE OF PAYMENTS DEVELOPMENTS

137. The current account balance is estimated to have widened to a surplus of
US$387.1 million in the first half of 2022, compared to a deficit of US$97.2
million for the same period in 2021. The surplus continues to be driven by
international remittance inflows coupled with merchandise exports growing
faster than imports. However, deficits in the services and primary income
accounts moderated the current account surplus.

Figure 21: Current Account Developments (US$ millions)

Source: RBZ and Zimstat estimates

Merchandise Exports
138. Preliminary estimates show that merchandise exports increased by 33% to
US$3 516.5 million in the first half of 2022, from US$2 649.7 million for
the corresponding period in 2021, spurred by increases in agriculture,
mineral and manufactured goods exports.

139. Minerals underpinned merchandise exports performance in the first half of
2022, growing by 32% from US$2 193.8 million recorded for the same
period in 2021 to US$2 899.0 million on account of higher production.
Mineral export prices were also spurred by heightened geo-political tensions
in eastern Europe and inflationary pressures in advanced economies as
investors sought refuge in safe-haven assets. Gold exports benefitted from
higher global prices amid safe-haven demand, coupled with higher
production as incentives to producers continue to bear fruit.
-600
-400
-200

2021Q1
2021Q2
2021Q3
2021Q4
2022Q1
2022Q2
Trade Bal
Services Bal
Bal on Primary Income
Bal on secondary Income

140. Agricultural exports increased from US$303.2 million in the first half of
2021 to US$434.5 million in 2022 on account of larger tobacco output amid
significant carryover exports from the previous season.

141. Manufactured exports increased, albeit from a lower base, from US$152.8
million in the first half of 2021 to US$183.1 million in 2022, driven by rising
exports of cigarettes, refined sugar and electrical products. However, low
competitiveness and high market development costs continue to hamper
manufactured exports.

Merchandise Imports
142. Merchandise imports increased by 15% to US$3 746.8 million in the first
half of 2022, up from US$3 249.2 million in 2021, driven by fuel,
machinery, and raw material imports. As the economy expands, so does its
capacity to absorb imports that feed into the production process. Increasing
fuel, edible oils and fertilizer prices on account of elevated geo-political
tensions also drove the import bill higher.

Services
143. Trade in services is recovering from the Covid-19 shock, with travel,
passenger transport and other vital services beginning to trend up. Services
exports increased from US$102.5 million in the first half of 2021 to
US$175.9 million in 2022. Services imports similarly rose from US$424.5
million in 2021 to US$674.8 million in 2022. Travel services have picked
up following the relaxation of the Covid-19 containment measures, with

people now moving freely across borders. Freight services (transport) have
increased with increasing merchandise exports and imports.

CAPITAL FLOWS
144. Notwithstanding the health crisis brought about by the outbreak of the
Covid-19 pandemic, foreign direct investment inflows improved, mainly
reflecting efforts by Government to improve the investment climate through
a raft of reforms and investments by major mining houses as the sector gears
for the US$12 billion economy target by 2030.

145. Private sector offshore loans have continued to provide a lifeline to the
economy by injecting the much-needed foreign exchange for working capital
and retooling the productive sectors. Notably, the agricultural sector is the
primary beneficiary of approved external loan facilities accounting for more
than half of the approved loan facilities in 2022.

SECTION SIX

MONETARY POLICY STANCE FOR THE NEXT SIX MONTHS

146. The Bank will continue to implement a tight monetary policy stance for the
next six months in order to sustainably anchor inflation and exchange rate
expectations. The tight monetary policy path will be anchored on the
following measures:

147. Minimum Capital Requirements
Minimum capital requirements for all categories of banks will be maintained
at the current levels since almost all the banks are on a positive trajectory to
achieve the prudential capitalisation levels by the deadline of 31 December
2022. The Bank will, on a case by case basis, engage and deal with those
banks which may face difficulties in achieving the required minimum capital
requirements.

148. Interest Rates
i.
The current Bank policy rate of 200% will be reviewed in line with
developments in monthly inflation;
ii.
Medium Term Accommodation rate will also continue to be
reviewed in line with monthly inflation developments and long-term
productive sector funding needs; and
iii.
The deposit interest rates on savings and time deposits will remain
at 40% and 80% per annum, respectively, and will be reviewed in
line with month-on-month inflation developments.

149. Statutory Reserves
Foreign currency denominated loans now constitute more than half of the
total loans in the economy. To ensure continued safety and soundness of the
domestic banking sector, it is crucial for banks to hold a certain proportion
of the foreign currency deposits as a liquid asset buffer. In this regard, with
effect from 1 September 2022, statutory reserve requirements shall be
extended to foreign currency deposits at rates of 5% for call deposits and
2.5% for time and savings deposits. The differential system is to encourage

banks to promote savings deposits that are necessary to support long term
productive lending in foreign currency.

150. Foreign Exchange Retention
The foreign exchange retention thresholds shall continue at the current levels
with agricultural exporters (tobacco, cotton, tea, coffee and horticulture)
retaining 75% and the tourism sector retaining 100% to enable the ongoing
capitalisation and recovery of the sector to continue following the adverse
effects of the Covid-19 pandemic.

151. Bureaux de Change
In line with the need to further liberalise the foreign exchange market, the
limit on foreign exchange transactions for individuals and micro, small and
medium enterprises (MSMEs) processed through bureaux de change has,
with effect from 15 August 2022, been increased from US$500 per week to
US$5 000 per transaction per month for foreign currency payments that
include medical expenses, educational expenses (including student upkeep),
business and holiday travel, airfares and subscriptions. Bureaux de change
shall also continue to operate under the basis of the willing-buyer willingseller arrangement, where there is no cap on the amount they can purchase
from the sellers of foreign currency.

152. Willing-Buyer Willing-Seller Foreign Exchange Trading Mechanism
The limit for qualifying transactions under the willing-buyer willing-seller
foreign exchange trading system has, with effect from 15 August 2022,
been increased from US$10 000 to US$20 000 per transaction per week.

Qualifying foreign exchange payments under this mechanism will cater for
transactions for goods and services such as raw materials, capital goods,
medical expenses, education expenses (including student upkeep), business
and holiday travel, airfares and subscriptions.

153. Mosi-oa-Tunya Gold Coins
Following the successful launch of the gold coins on 25 July 2022 and in
response to public demand, the Bank shall introduce and release into the
market gold coins in smaller units of a tenth ounce, quarter ounce and half
ounce for sale with effect from mid-November 2022. The features,
characteristics and the sale terms and conditions shall remain the same as the
current trading arrangements of the gold coins in circulation.

154. Foreign Exchange Auction System
The foreign exchange auction remains a critical platform on which industry
and commerce access foreign exchange. The auction bids will continue to be
guided by the exchange rates obtaining on the willing-buyer willing-seller
foreign exchange trading platform and by the available foreign currency. In
this context, the foreign exchange auction system is no longer a price
discovery mechanism but instead the most ideal allocative platform of
foreign currency in the domestic economy given the geo-political constraints
facing the local banking industry to establish an efficient interbank foreign
exchange market.

155. Central Bank Digital Currency (CBDC)

In the Monetary Policy Statement of February 2022, the Bank advised of its
intention to explore central bank digital currency (CBDC) on a phased
approach pursuant to the Cabinet decision of November 2021 and taking into
account global trends. Since then, the Bank has conducted study tours to
countries that are advanced in CBDC endeavours and has developed a
roadmap for adoption of CBDC in Zimbabwe.

156. The role of stakeholders in the CBDC journey is paramount and in that
regard the Bank has developed a public consultation paper on CBDC to be
released soon. The consultation paper is aimed at fostering a broad and
transparent public dialogue regarding the potential benefits and risks of
CBDC. The public will have a period of 90 days from the date of release to
submit their comments to the Bank.

157. In addition to the consultation paper the Bank shall carry-out consumer
perception surveys on CBDC. The findings of both the consultation paper
and consumer survey will enable the Bank to engage in pilot programmes
related to CBDC.

SECTION SEVEN
ECONOMIC AND INFLATION OUTLOOK
158. The current tight monetary policy stance, together with the favourable
uptake of Mosi-oa-Tunya gold coins as an alternative stable financial
product for store of value and for mopping up excess liquidity, shall continue
to support the stability in the exchange rate and sustain disinflation witnessed
towards the end of July 2022 and in August 2022.

159. It is essential that fiscal policy works in tandem with the monetary policy to
bring down inflation. The concomitant action taken by Government to put
in place value for money measures that dissuade its suppliers of goods and
services from manipulating the exchange rate through forward exchange rate
pricing system is therefore critical to contain inflation, especially given the
significant purchasing power of Government in the economy of around 70%.
160. As such, with month-on-month inflation having declined from 30.7% in June
2022 to 25.6% in July 2022, the Bank anticipates the monthly inflation to
continue to progressively decline by between 3 to 10% in the outlook period.
161. The downside risks to inflation in the outlook period include the continued
geo-political tensions, global pandemics and climate change which continue
to drive the surge in international food, fertiliser and oil prices.
162. On the external sector front, merchandise exports are projected to close the
year 2022 at US$7 346.5 million, a 15.5% increase from US$6 359.1 million
in 2021. On the other hand, merchandise imports are projected to end the
year at US$8 082.3 million, 13.2% up from US$7 138.4 million in 2021,
driven by increases in grain, fuel, machinery and raw material imports.
International and diaspora remittance inflows are projected to continue
driving the current account balance, as was the case in 2021. The current
account surplus is envisaged to close at US$366.3 million in 2022, which
compares favourably to the US$348.2 million that the country registered in
2021.

163. The Bank strongly believes that the current tight monetary policy stance
complemented by the strong will by Government to putting in place
measures that deal with factors that destabilise the foreign exchange market
will result in exchange rate and price stability in the near and short-term.
164. Thus, the decline in month-on-month inflation is expected to continue up to
the end of this year and into 2023. This is essential for value preservation of
the local currency and sine qua non to promote its use for transactional
purposes.
165. The recent positive developments in the parallel market foreign exchange
premiums and the decline in monthly inflation suggest that the current
monetary policy stance should be maintained. The Bank will, therefore,
continuously review its monetary policy toolkit in line with monthly
inflation developments.
I Thank You
Dr. J.P. Mangudya
Governor
SECTION EIGHT
CONCLUSION
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Reserve Bank of Zimbabwe
93 Leopold Takawira Street
Box 399 Bulawayo, Zimbabwe
Tel: +263 8677002046
Email:
Reserve Bank of Zimbabwe
80 Samora Machel Avenue
Box 1283 Harare, Zimbabwe
Tel: (+263) 242700300
Email: