Back to Index

Governor's Memorandum to Financial Institutions: Fine-Tuning of Monetary Policy
Reserve Bank of Zimbabwe
October 09, 2006

http://www.rbz.co.zw/inc/publications/legaldept/rbzpdfs/mps_measuresOCT2006.pdf

Download this document
- Acrobat PDF version (145KB)

Download a summary of the key issues arising from this memorandum
- Word 97 version (37KB)
- Acrobat PDF version (120KB)
If you do not have the free Acrobat reader on your computer, download it from the Adobe website by clicking here.

1. INTRODUCTION

1.1 The banking sector, the corporate community and the general public will recall that, in January 2006, the Reserve Bank announced that it was adopting the half-yearly cycle of monetary policy announcement in line with statutory requirements.

1.2 It was also clarified then that, quarterly updates will be issued in between the bi-annual monetary policy announcements.

1.3 With the third quarter having ended on the 30th of September, 2006, this Statement seeks to fine tune the monetary policy framework in line with our announced cycles.

1.4 With inflation reduction remaining the overriding objective of the Central Bank, it has become necessary that additional measures be implemented, so as to stabilize the economy in the medium term.

1.5 Against this background, the following fine-tuning measures have been introduced with immediate effect:

2. MONETARY POLICY MEASURES

FINANCIAL SECTOR STABILIZATION BOND
2.1 Following representations by players in the banking industry, the Reserve Bank has adopted the following policy positions:

(a). Successive reduction of statutory reserves;
(b). De-linking of capital requirements from the exchange rate.

2.2 In order to ensure that the financial sector further strengthens its medium to long term asset position, the

Reserve Bank has introduced a 5 year financial sector stabilization bond, which each licensed institution will hold as a performing asset in its books, with effect from Monday the 16th of October, 2006.

2.3 The features of this bond are:

(a). It counts as a collateral asset for accommodation purposes;
(b). The annual coupon rate is variable, as given below:

Year 1: 500%
Year 2: 250%
Year 3: 100%
Year 4: 25%
Year 5: 10%

(c). The holding thresholds on balance sheet size as at 30 September 2006, will be:

• Commercial banks: 10%;
• Merchant banks: 7.5%;
• Finance Houses: 5%;
• Building Societies: 5%;
• Discount houses: 5%; and
• Asset Management Companies: 2.5%.

BANK BORROWING FROM INDIVIDUALS AND CORPORATES
2.4 The Central Bank is aware that, in their quest to evade paying Statutory Reserves, some banks have been found window-dressing their liabilities position, by re-packaging large deposits from corporates and from certain wealthy individuals as "loans" to the banks.

2.5 Such "loans" would, thus, be "creatively" excluded in the calculation of Statutory Reserves, effectively undermining the effectiveness of monetary policy.

2.6 With immediate effect, therefore, banks are directed to cease any such fictitious loans, which must be included in the determination of statutory reserves.

2.7 The Central Bank will, through its Bank Licensing Supervision and Surveillance Division, be conducting audits and follow-ups. Where non-compliance is detected, punitive action will be taken to correct such wayward behaviour.

(Contined..)

Download full document

Please credit www.kubatana.net if you make use of material from this website. This work is licensed under a Creative Commons License unless stated otherwise.

TOP