The 2009 Mid-year

Monetary
Policy statement
30 July 2009
BY

DR. G. GONO
GOVERNOR
RESERVE BANK OF ZIMBABWE
::
The 2009 Mid-year

Monetary Policy statement
By DR. G. GONO, GOVERNOR RESERVE BANK OF ZIMBABWE
Issued in terms of the
Reserve Bank of Zimbabwe Act
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INTRODUCTION
BACKGROUND
AND
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* In addition, there are 81 operating money lending and microfinance institutions.
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DEPOSITS, LOANS AND ADVANCES AS AT 30 JUNE 2009
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0.00
56.21
28.11


0.02
0.02
4.20

1.00
0.05
Total Deposits
US$
Deposit
Rate (%)
Loans to
Deposits Ratio
Effective
Lending
Rate (%)
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72 . The guideline also covers the application requirements for banks willing to adopt the advanced
approaches for the measurement of credit and operational risks. These approaches will be
available for adoption with effect from 1 January 2010.
73 . With the issuance of this guideline it follows that banking institutions are now expected to allocate
capital for credit, market and operational risk as per the Basel ll requirements subject to the
deadlines herein.

74 . The microfinance sector continues to experience viability challenges occasioned by an adverse
macro-economic environment in the recent past including inadequate funding, with most of the
microfinance institutions having suspended microfinance business in 2008.
75. The harsh macroeconomic environment prevailing during 2008 forced a number of microfinance
institutions with branches in the rural and peri-urban to close some of them thereby exacerbating
the problem of financial exclusion.
76 . In an effort to eradicate financial exclusion and create appropriate financial institutions to serve the
economically active poor and low income households, the Banking Act [Chapter 24:20] was
amended to provide for the licensing and supervision of deposit-taking microfinance banks.
77 . The minimum equity capital requirements for microfinance banks shall be US$1000 000.00. In
addition, microfinance banks may be required to increase capital levels in line with their risk
profile.


78. As highlighted in my previous monetary policy statements, a safe, sound and efficient payment
system is critical for financial stability and overall economic development of a country
79. Despite the hyperinflationary environment that characterized Zimbabwe’s economy over the past
decade, notable strides were made in modernizing and diversifying payment systems through
collaborative efforts with the banking industry and other stakeholders.
80. While the effects of hyperinflation were beginning to erode the benefits of a robust national
payment system built over the years, the adoption of the multi-currency system has gone a long
way in stabilizing both the large and small value payment systems in the country.
Financial Inclusion
OVERVIEW OF THE NATIONAL PAYMENT SYSTEMS
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RTGS VOLUMES AND VALUES

16-Ap -09
r
23-
-09
Apr

r0
0-Ap - 9
07-May-09
1 -
ay-09
4 M
21 May 09
-
-
8y 0

Ma - 9
-
-0
04 Jun

1 -Jun-09
-J

un-09
2 -J n- 9

u

2 Jul- 9
0 -

-
09 Jul-09
J l-09
16- u
WEEK ENDING
VALUES (USD MILLIONS)
-

VOLUMES (THOUSANDS)
Values
Volume
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84. Statistical information on RTGS activity in volumes and values since the 14th of April 2009 to
the 2nd of July 2009 is contained as contained in the table below.

RTGS ACTIVITY - 14 APRIL TO 2 JULY 2009
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Card Payment Stream
85. Pursuant to the objective of promoting electronic means of payment, the Central Bank collaborated
with the banking industry and other stakeholders to ensure interoperability of cards on the local
switching platform (Zimswitch).

86. The Reserve Bank commends Zimswitch and the banking community for making concerted efforts to
re-align the local platform which is now processing US dollar transactions.
87. All card issuing financial institutions have since become members of Zimswitch. However, whilst a
significant number of banks have become active on the platform, a few banks are still finalizing the
required technical modalities.
88. In addition, the Central Bank is encouraging financial institutions and other relevant players to
promote the spread and use of POS devices throughout the country. It is envisaged that the use of
cards will relieve pressure on change and the demand for cash which has to be imported from
outside the country.
89. To provide convenience to the transacting public, merchants are encouraged to re-introduce the
cash back facility at the point of sale.
90. In order to resuscitate the usage of international cards in the economy, which had become
dysfunctional during the hyperinflation environment, the Central Bank and the banking community
engaged Visa International. The resuscitation of the Visa platform will go a long way in providing
convenience to international visitors particularly during the impending 2010 FIFA World Cup in South
Africa.
Retail Payments
International Cards
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91. The engagement has culminated in a firm commitment by Visa to work with the local banking
community to ensure a return of the Visa platform that enables international visitors to spend their
money whilst in Zimbabwe.
92. Given the support and commitment from all stakeholders, it is our sincere hope that the Visa platform
will be operational for international cards in the not distant future.

93. Over the past few years, the internet and mobile banking platforms have been evolving and are
available to the banking public on a limited scale.

94. These platforms have been used mainly for informational services, intra-bank and bill payments, yet
they provide an opportunity for making small value payments across banks between customers and
to public utilities.
95. The financial services sector and other stakeholders in the market are encouraged to explore ways of
utilizing these tools as channels for retail payments on a large scale and across banks.


96. The cheque clearing system was suspended upon the introduction of a multicurrency system. 155.
We however urge the banking community to consider the re-introduction of cheques at inter-bank
level, taking into consideration the inherent risks associated with paper based instruments.


97 . World over, central banks are mandated with the responsibility to oversee and ensure the safety,
soundness and efficiency of payment, clearing and settlement systems to enhance financial stability.

98. To this end, the Reserve Bank fully subscribes to international best practices, in particular, the Bank
for International Settlements (BIS) Committee on Payment and Settlement Systems (CPSS) Core
Principles for Systemically Important Payment Systems (CPSIPS) as well as the IOSCO
Recommendations for securities settlement, among others.
100. To ensure that payment systems operate on a sound legal basis under all relevant
jurisdictions, the National Payment Systems Act [Chapter 24:23] empowers the Central Bank
to recognize and oversee all payment, clearing and settlement systems in the country.
Internet and Mobile Banking
Cheque Clearing
Role of Central Bank as an Overseer of Payment Systems
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Month on Month Headline Inflation


Jan-09
Feb-09
Mar-09
Apr-09
May-09
%
110. The graph below shows the month-on-month inflation profile over the last five months.
Figure 1: Inflation Profile: January – May 2009.
111. Month on month decline in prices has, however, slowed down implying that prices are slowly
stabilizing and could take an upward trend from the second half of the year.
Inflation Outlook

CLUSTERS OF INFLATION DRIVERS
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2-Jan- 9

16n- 9
Ja

30-Jan-09
13-Feb-09
27- eb-09
F
r- 9
13-Ma 0

M

7ar10-Apr-09
-
r 0
24 Ap - 9

08-May- 9
2 M
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ay-09
-
05 Jun-09

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9-u n-9
03-
-09
Jul
US$/Barrel
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124. The economy is now markedly more sensitive to fuel price changes than before - in so far as the past
years offered arbitrage opportunities and speculative sources of income to cover gaps arising from
cost build up. These opportunities no longer exist.

125. Accordingly, a significant proportion of fuel costs will be passed on with a quicker pass through as
companies face diminished loss absorptive capacity. The increase in prices will be based on the
highest fuel price obtaining in the market – Petrol.
126. Invariably, prices are now increasing, though unevenly across most sectors of the economy.
Headline month on month inflation will increase and may exceed 2 -3 percentage points, during this
quarter. Over the past 2 months, Petrol prices have surged by about 57% from 95 cents a litre to
US$1.30 per litre.
127. In addition to the fuel taxes alluded above, domestic fuel prices also respond to erratic domestic
supply patterns – which further amplify the upward drift in fuel prices.
129. In addition, exchange rate and inflation developments between the United States of America and
South Africa have also influenced price levels in the economy.
130. Domestic inflation will also incorporate exchange rate fluctuations between the ZAR and the USD.
Appreciation of the Rand relative to the USD has generated upward price pressures in Zimbabwe.
131. Zimbabwe imports most of the raw materials and finished goods from South Africa. Prices of most
South African goods imported are denominated in US dollars.

132. The Multiple Currency system inherently implies diminished capacity for Monetary Authorities
interventions to deal with domestic inflation. This is because there is no independent Monetary
Policy.
133. Accordingly, it is imperative to ensure that prices do not escalate incessantly as such a
development would entrench adverse expectations with no mitigatory corrective measures.
134. Government and Monetary Authorities should therefore coordinate their policies expressly to
head off any incipient inflationary pressures before they build up.
135. On the Fiscal Policy front, the lowering and rationalisation of duties and levies on Fuels will go a
long way in reducing inflation.
Measures to Control Inflation
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Demand deposits
68.3%
Short Term
Deposits
2.6%
Long Term
Deposits
1.5%
Savings
27.6%
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158. Gold prices have also benefited from a weak U.S dollar, as its recent depreciation against the euro
and a basket of other currencies has seen investors considering gold as a safe investment haven.

159. Platinum prices rose from US$1 582 per ounce in January 2008 to a record peak of US$2 054 per
ounce in May 2008 on the back of increased demand and depleted stocks.
PLATINUM PRICE TREND

160. This notwithstanding, significant gains attained in the first half of 2008, platinum prices took a
downward deep since June 2008. Platinum prices, therefore declined to an average of US$1 746 per
ounce in August before plummeting to an average of US$850 per ounce by year end in the face of the
global financial crisis and prospects of a global recession. 221. Platinum prices have, however
recovered dramatically in first half of 2009, registering a 28 percent gain from an average of US$950
per ounce in January to US$1 220 per ounce by end of June.
161. Although demand for platinum continues to be weak with the automotive industry struggling in the
face of the global recession, there has been growing interest by investors to invest in the metal thus
supporting the price.
PLATINUM
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173. This was against a backdrop of supply cutbacks by major oil producers such as the Organization of
the Petroleum Exporting Countries (OPEC) as well as geopolitical tensions in Nigeria, Venezuela,
Iraq, Algeria and Iran, all of which are OPEC members.
Crude Oil Price Trend

174. Crude oil prices, however, tumbled by more than 70 percent in the second half of 2008 since
reaching a record US$147.27 a barrel in July 2008 as the worst financial crisis since the 1930s
has pushed the world into a recession, curbing fuel demand.
175. In the first half of 2009, crude oil prices have continued to firm, albeit at a sluggish pace,
registering a 48 percent increase from an average of US$44 per barrel in January to US$65 per
barrel in June.
176. For the period 1 January 2009 to 1 July 2009, total export shipments amounted to USD475.52
million, compared to USD762.02 million exported during the same period in 2008, representing a
37.60% decline.
177. On a sectoral basis, the mining sector export shipments account for 44%, with tobacco and
manufacturing accounting for 26% and 14%, respectively, for the period 1 January 2009 to 01
July 2009.
EXPORT PERFORMANCE
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Table 1: Summary of Inflows (USD m) in 2009
1)*Figures as at 30 June 2009
Notes:
1. Amount reflects inflows from companies’ export proceeds, FCA liquidations and other free funds.
2. Excludes proceeds of other tobacco-backed facilities. 3.
Proceeds from disbursements on
offshore facilities.
Table 2: Summary of Inflows (USD m) 2003-2008
Notes:
1. Amount reflects inflows from companies’ export proceeds, FCA liquidations and other free funds.
2. Excludes proceeds of other tobacco-backed facilities.
3. Proceeds from disbursements on offshore facilities.
SOURCES OF FOREIGN EXCHANGE
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Total Export Shipments (US$ millions)
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Jan
Feb
Mar
Apr
May
June
US$ Millions

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213. Depreciation of an investment is mainly done in order to access tax incentives, which have the effect
of reducing the taxable portion of an investment or asset, thereby creating a conducive environment
for attracting Foreign Direct Investment (FDI).
214. Depreciation on investments has the effect of reducing capital appreciation as the investor would
have received the initial investment throughout the life of an investment, in the form of depreciation
allowances.
215. The provision for allowing depreciation on direct investments or assets is beneficial to the foreign
investor as a tax relief. However, payment for moderate amounts for depreciation of direct
investments is not remittable since it is a non-cash expense.
216. As an incentive to foreign investors, the Reserve Bank, shall allow for the remittance of depreciation
proceeds through prior Exchange Control approval. Such remittances will be subject to verification
and certification to ensure that the depreciation expense has been treated in line with International
Accounting Standards.

217. Authorised Dealers were restricted from entering into derivative transactions between ZWD and
foreign currency, due to foreign exchange constraints which would make it difficult to honour the
ensuing foreign currency obligation. Derivatives are considered capital account items given the
inherent risk exposure of the underlying asset at settlement.
218. In line with the liberalisation of the foreign exchange market and the willingness by
Authorised Dealers to offer such products, it is therefore imperative to allow use of
derivatives instruments in Zimbabwe.
219. Authorised Dealers are, with immediate effect, authorised to enter into derivatives, only where there
is an underlying asset and not for speculative reasons.
220. All financial derivatives which have a value or exposure of less than USD5 million, shall not require
prior Exchange Control approval. In this respect, as is the case with external loans, all financial
derivatives above USD5 million shall require prior Exchange Control approval.
Remittance Of Proceeds On Depreciation Of Direct Investments
Use Of Financial Derivatives
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(c)
Uncoordinated mining sector investment attraction strategies leading to multiple duplications of
representations to the same potential investor thereby creating confusion and hesitancy by the
potential counter parties;
(d)
Non-allocation of meaningful fiscal budgetary resources for active surveying and exploration of
country’s true worth in mineral resources terms;
(e)
Serious technical capacity deficiencies in the Ministry of Mines and Mining Development due to brain
drain;

(f)
Capacity constraints on marketing and marketing development and penetration; and
(g) Limited capacity to value-add our primary mineral production.
256. With the resources as appended below, the country can earn significant foreign currency from the
auctioning of the claims.
SUMMARY OF ZIMBABWE’S ESTIMATED MINERAL RESERVES
260. The Mining and Minerals Act should reflect an indigenous policy that encourages foreign investment.
The policy should allow foreign investors who are bringing in capital to own more than 50% of the
venture.
261. Another area of serious concern is that currently, the mining sector is contributing very negligible
amounts to the fiscus in the form of royalties as low as 1%.
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269. Parastatals and local authorities account for at least 40% of Gross Domestic Product (GDP) and
have forward and backward linkages with the rest of the economy. For meaningful turnaround,
efforts should also be geared at addressing the requirements of these critical sectors.
270. Infrastructure is mainly developed and managed by parastatals and it is therefore critical to
capacitate the sector to ensure that the productive sectors and the rest of the economy have access
to power, water, transport and communication.

INFRASTRUCTURE AND UTILITIES
The 2009 Mid-year

Monetary
Policy statement
The
Mid-Year Monetary Policy Statement.....The
Mid-Year Monetary Policy Statement......The
Mid-Year Monetary Policy Statement

FISHBONE ANALYSIS: THE SUPPLY-SIDE INTERVENTIONS OF PARASTATALS
AND REASONS WHY THE RESERVE BANK OF ZIMBABWE SUPPORTED
THEM
The 2009 Mid-year

Monetary
Policy statement

The 2009 Mid-year

Monetary
Policy statement
The
Mid-Year Monetary Policy Statement.....The
Mid-Year Monetary Policy Statement......The
Mid-Year Monetary Policy Statement

( US$'m )

YEAR
RECEIPTS (US$'m)
RECEIPTS
The 2009 Mid-year

Monetary
Policy statement

The 2009 Mid-year

Monetary
Policy statement
The
Mid-Year Monetary Policy Statement.....The
Mid-Year Monetary Policy Statement......The
Mid-Year Monetary Policy Statement

The 2009 Mid-year

Monetary
Policy statement

The 2009 Mid-year

Monetary
Policy statement

The 2009 Mid-year

Monetary
Policy statement
The
Mid-Year Monetary Policy Statement.....The
Mid-Year Monetary Policy Statement......The
Mid-Year Monetary Policy Statement

The 2009 Mid-year

Monetary
Policy statement
The
Mid-Year Monetary Policy Statement.....The
Mid-Year Monetary Policy Statement......The
Mid-Year Monetary Policy Statement

The 2009 Mid-year

Monetary
Policy statement