2024 Monetary Policy Review & Analysis

You’ve Got The Bank

Introduction

Your Reliable Travel

• On April 05, 2024, the Reserve Bank Governor presented the 2024 • Despite these setbacks, the economy as reported remained resilient,
Monetary Policy, themed “Recalibrating The Monetary Policy Framework with an anticipated growth trajectory, albeit lower than the initially

Everywhere You Go
To Anchor Currency, Exchange Rate And Price Stability’’. anticipated growth of 3.5% in 2024, due to the impact of the El-Nino
induced drought which has turned out to be more severe than initially

Partner,
• This analytical report is prepared in response to the 2024 Monetary envisaged.
Policy Statement Measures. The purpose of this report is to provide an
analysis and assessment of the potential implications and impacts of the • Global growth is forecasted to be steady at 3.1% in 2023 and 2024,
policy changes. respectively, albeit well below historical average growth rates.

The FBC Prepaid

Scope and Limitations: • Global risks and vulnerabilities have increased on account of tight
The analysis presented in this report is based on the information available up monetary and financial conditions, funding squeeze, intensifying geo-
Now
to the you
date can open anAny
of publication. account fromdevelopments
subsequent anywhere,anytime.
or modifications political tensions, growing adverse weather events, and supply chain
to the policy may not be reflected in this document. The findings and disruptions.

Mastercard
recommendations are contingent upon the accuracy and completeness of
Justdata
the download the free
and information usedFBC Mobile
in the Banking
analysis. App or inaccuracies
Any changes • The underlying global risks are likely to weigh down global growth
orthe
in dial *220# and
underlying datayou
maywill
affectbethe
done in of
validity minutes.
the conclusions drawn. prospects with spill-over effects on the domestic economy.

Assumptions • The 2024 Monetary Policy Framework seeks to address the following:
The analysis involves certain assumptions about the interpretation and • Currency and exchange rate stability
implementation of the policy. Any deviation from these assumptions may
alter the outcomes outlined in this report. This report assumes that the • Financial Sector Stability
policy measures will be implemented as stated and any amendments or • Strategic management of money supply growth
revisions may impact the accuracy of the analysis.
• Foreign exchange mobilization and reserve accumulation
External factors • Promotion of local currency use
External factors, including but not limited to economic conditions, • The key highlights of the new monetary policy measures include:
geopolitical events, and unforeseen circumstances, may influence the
• Introduction of a new structured currency;
outcomes presented in this report. The report does not account for events
beyond the control of the organization (“FBCH”), which may impact the • Adoption of a market determined exchange rate
overall success or effectiveness of the policy. • Efficient and optimal money supply management
• Issuance of new bank notes and coins
Future Changes:
The policy landscape is dynamic, and changes may occur in response to • Anchoring the new currency with foreign currency and precious
feedback, public opinion, or evolving circumstances. Future modifications minerals
to the policy may necessitate a re-evaluation of the conclusions presented
in this report. • Institution of a new exchange rate management system
• Introduction of a new foreign exchange liquidity management
Expertise and Consultation: system
This report is based on the expertise of the analysts involved and the
information available at the time of preparation. External consultations • Review of the interest rate regime to factor new currency changes
and expert opinions may provide additional insights not covered in this • Revision of statutory reserve requirements to factor new currency
document.
changes
This report is intended for informational purposes only and does not • Alleviation of bank charges on daily bank balances of $100 and
constitute legal, financial, or professional advice. FBCH disclaims any below
liability for actions taken based on the contents of this report.
• Settlement of QPDs in local currency to the tune of 50%
Overview • Conversion of unpaid auction allotments to an NNCD instrument
• The greater part of 2023 was characterized by inflationary pressures, • Re-configuration of the National Payment System
exchange rate volatilities, high cost of borrowing and erratic power
supply that culminated into a complex operating environment.

Key Macroeconomic
Indicators

++263
263 772
+263 772 4219
4219
419 693693
693 • +263•772 +263 772• 152 647 • +263 732 152 647
152 647
220
220oror
(Toll 080
080
free 800
on
help@fbc.co.zw
help@fbc.co.zw
@fbc.co.zw
all25/6
800 25/6( For
networks) Econet
( For Subscribers
Econet
220 • (Toll Only)
Subscribers Only)
free on Econet network only) 080 800 25/6
FBC Bank Limited
+263
+263242242704481/2
704481/2• 761198• •761198
756685 • •754232 • 756012
756685 • 754232 • 756012
FBC.Help.Centre
FBC.Help.Centre You Matter Most You Matter Most
Policy Measures & Impact
Measure Impact
Adoption of market-determined Promotes an efficient price discovery mechanism for the market.
exchange rate
Eliminates market distortions,creating an environment conducive for consistent pricing frameworks

The key issue has always been the disparity between the official and alternative market exchange rate.

Reduction in foreign exchange rate premiums which is good for business reporting, assessment and forecasting

A market-based pricing system promotes investments and efficient pricing systems which are good for economic growth.

You’ve Got The Bank

If the policy measure is implemented consistently, it will potentially ensure price stability as our exchange rate will adjust in response to market forces.

A stable and market-driven exchange rate system can attract foreign investment by providing a predictable environment for investors.

Your Reliable Travel

Efficient and optimal money supply Promotes price stability and eliminates speculative behaviour and aggressive forward pricing tendencies which were rampant in the market.

Everywhere You Go
management

Fixing reserve money growth to foreign currency reserves and gold can instill confidence in the currency and monetary system. This can also act as an inflation
control measure by limiting money supply growth. When there is value preservation, supply of liquidity through savings, may be achieved, further enhancing the

Partner,
level of investments in the country.

This mechanism can enhance credibility and transparency of the country’s monetary policy to both domestic and international investors, as the value of the
currency is linked to tangible assets.

The FBC Prepaid

Predictability will come naturally when there is a clear money supply management process. There will likely be more Capital investments in a predictable
environment

• Introduction of new structured Goods and Services will now be priced in ZiG instead of ZWL. The multi-currency regime is however, still in operation, implying that other currencies (e.g USD)
Nowcurrency
you can open an account
will still befrom anywhere,anytime.
legal tender. ZiG will be part of the basket of currencies.

Mastercard
• Currency is pegged to a The introduction of a new structured currency will have far-reaching implications across the economy. Planning, communication, and policy adjustments are
bundle of foreign exchange essential in managing the transition effectively and mitigating potential risks.
Just download the free FBC Mobile Banking App
assets (foreign currency and
or dial *220# and you willThe
precious minerals).
bedomestic
doneeconomy has been characterised by high inflation, as well as exchange rate and currency instability. The economy has, of late, been moving towards
in minutes.
full dollarisation, as the US dollar has continued to dominate the weaker ZW$, with over 80% of market transactions currently conducted in US dollars.
• Currency is fully convertible
into the reserve currency on Against this background a stable and solid new currency may usher in certainty, predictability, limited inflationary pressures and exchange rate stability.
demand.
The introduction of the new currency (ZiG), provides an opportunity to reform and modernize our financial system , potentially increasing transparency and limiting
the downside risks which have been prevalent during the last few years.

The transition to ZiG requires adjustments in banking systems, including updating software and processes. These exercises introduce operational risks which need
to be closely monitored.

Public perception and uncertainties around ZiG’s stability may affect adoption, use and investment spending. Consistency in policy application by government and
RBZ will be key to building confidence.

Use of multi-currency until 31 An assurance around the tenor and use of a multi-currency system is a key enabler for business confidence.
December 2030
For businesses engaged in international trade or investment, the use of a multi-currency system provides flexibility in conducting transactions. This policy
measure also smoothens currency risk management, especially in dealing with foreign suppliers or customers.

In a multi-currency system, businesses can price goods and services in different currencies, with the liberty to apply their foreign exchange risk management
skills and systems

May allow the flow of foreign investments into the country

Policy measure makes it convenient for visitors and investors who prefer to use their own respective currencies. Tourism sector a key beneficiary of this intervention

Whilst the inherent advantages of the current multi-currency system are clear, complexities in terms of managing exchange rate risk, transaction costs, and
accounting issues remain apparent.

Currency Conversion and the The conversion of the Zimbabwe Dollar balances into the new currency ZiG will be guided by the closing interbank exchange rate and the prize of gold as at 05
Swap Rate April 2024.

Beneficial to customers holding ZWL deposits with banks as value risk has been mitigated, given that the new currency is indexed to assets whose prices regularly
align with market trends

Borrowed customers (ZWL) will now have their borrowings hardened, implying real costs when it comes to borrowing in the future

Value preservation for those that were holding assets denominated in ZWL

There are, however, possible future complications for accounting and reporting purposes

For all cash exchanges above ZW$100,000, banks shall apply the requisite “‘Know Your Customer’’ (KYC) and Customer Due Diligence (CDD) principles

Anchoring the new currency with ZiG shall always be anchored and fully backed by a composite basket of reserves comprising foreign currency and precious metals (mainly gold), received by
foreign currency and precious the Reserve Bank as part of in-kind royalties and kept in the vaults of the Bank. Foreign currency balances will be accumulated through market purchases from
minerals. the 25% surrender requirements as well as sale of some precious metals received as royalties.

Given that the anchoring instrument is a dependant variable which is also a function of other input factors like commodity prices and general level of exports,
this may complicate the anchoring mechanism in the face of external market shocks.

The key issues will be price volatility and ensuring that the stock in reserves is always aligned to the currency in circulation.

Increase in statutory reserve Increasing reserve requirements for foreign currency deposits can be a prudential measure aimed at enhancing the stability of the financial system.
requirement for foreign currency
demand deposits from 15% to 20%. The downside of increasing reserve requirements for foreign currency deposits is a reduction in the money supply available for lending and investment which
may slow down aggregate demand and economic growth

The increase in reserve requirements may also lead to higher interest rates as banks may have to price the increased statutory reserves into pricing models.
This can make borrowing more expensive for businesses and individuals.

At least 50% of Tax Obligations to be Measure will deflate inflationary pressures and increase demand for the local currency. The demand for local currency to pay taxes could impact exchange rate,
paid in ZiG on Quarterly Payment especially if a significant portion of tax payments are made in local currency. This can lead to limited exchange rate volatility.
Dates(QPDS).
Companies that earn revenue in foreign currencies, however, may face increased currency exchange risk when converting their earnings for tax obligations and
fluctuations thereof will likely increase their taxation burden.

++263
263 772
+263 772 4219
4219
419 693693
693 • +263•772 +263 772• 152 647 • +263 732 152 647
152 647
220
220oror
(Toll 080
080
free 800
on
help@fbc.co.zw
help@fbc.co.zw
@fbc.co.zw
all25/6
800 25/6( For
networks) Econet
( For Subscribers
Econet
220 • (Toll Only)
Subscribers Only)
free on Econet network only) 080 800 25/6
FBC Bank Limited
+263
+263242242704481/2
704481/2• 761198• •761198
756685 • •754232 • 756012
756685 • 754232 • 756012
FBC.Help.Centre
FBC.Help.Centre You Matter Most You Matter Most
 Measure Impact
For businesses operating in multiple currencies, managing tax payments in local currency adds an administrative burden increasing compliance risk. Companies
may need to deal with additional currency conversion processes and attendant administration issues.

Requiring a significant portion of tax payments in local currency may impact government foreign currency revenues. Moreso, fluctuations in exchange rates can
influence the actual value of tax revenues collected in the local currency.

Companies may also face challenges in financial reporting and compliance when they have to reconcile tax payments made in different currencies with their
local currency financial statements.

You’ve Got The Bank

Alleviation of bank charges & Reducing bank charges may improve deposit retention levels given the low levels of disposable incomes and savings. Proportion of core or sticky deposits may
monthly maintenance fees increase albeit low in value.
for depositors who maintain a
minimum balance of US$100 or ZiG Whilst this is a plus for the depositors, reduced bank charges may lead to a reduction in non-funded income for banks.

Your Reliable Travel

equivalent.

Everywhere You Go
Downward revision of the Bank May spur demand for credit but capacity to lend may be limited, given the other policy measures announced which include increase in statutory reserves.
policy rate

Availability of affordable funding will improve access to working capital and enhance capacity utilization of businesses, creating growth opportunities.

Partner,
Commitment to transparency in Improvements in market confidence and predictability of policies, both of which minimise risks that were limiting banks and other units, with access to liquidity
the management of local currency from availing long-term funding.
money supply
The improved availability of long-term funding if it crystalizes will be a relief to businesses who were facing a challenge of having to fund long term projects using

The FBC Prepaid

short term funding.

Auction Allotments Obligations All outstanding auction allotments will be converted into ZiG and issued out as NNCDs with a maturity of 24 months at 7.5%.

Now you can open an account from preserved

Value of proceeds anywhere,anytime.
though there are downside risks.

Mastercard
Re-classification of balance sheet items from short-term to long term assets which may impact liquidity profile of those entities.
Just download the free FBC Mobile Banking App
Fixed return may not be consistent with other investment assets which may be earning higher than the NNCDs, implying possible opportunity costs or mark to
or dial *220# and you willmarket
be done in minutes.
losses. Opportunity cost also arises if the funds expected from the auction were meant for materials or equipment, which would have resulted in the
production of goods or services with much higher returns.

Possible exchange rate losses given that the aging of the outstanding auction allotments varies per institution or customer.

On the 5th of April 2024, Statutory

Instrument (SI) 60 of 2024
was promulgated providing
the legislative framework for
introducing ZiG. The key highlights
of the SI include;

• External Audit of Reserve An independent audit by external auditors of the reserve assets held by the Reserve Bank of Zimbabwe shall be conducted at least once a year. This will boost
Assets held by the Reserve confidence in the financial services sector as the public will be informed about the reserve assets backing the ZiG
Bank of Zimbabwe

• Legal Status of ZiG Notes and The ZiG currency shall be legal tender in all transactions and form part of the basket of currencies currently used in the country
Coins

• Effect of ZiG for Accounting By law, all assets and liabilities effectively in Zimbabwean Dollars shall be deemed valued in ZiG at the prescribed rate. This includes the discharge of financial
Purposes and contractual obligations.

• Gold Coins and Zimbabwe Gold Gold Coins and Zimbabwe gold-backed digital tokens that were already in circulation before the effective date shall remain in circulation and remain as
Backed Digital Tokens investment assets that can be redeemed under the conditions set forth by the RBZ

Conclusion and Outlook

• A positive trajectory is expected on domestic economic growth, albeit • The announced monetary policy measures aimed at stabilising
lower than the initially anticipated growth of 3.5% in 2024, due to the inflationary pressure and exchange rate volatility will help calm markets
impact of the El-Nino induced drought, geo-political tensions, depressed which have been in turmoil for some time.
commodity prices and supply chain disruptions.
• The effectiveness of the new Monetary Policy Measures will hinge on
• Global growth is therefore forecasted to be steady at 3.1% in 2023 and effective implementation, transparency and accountability.
2024, respectively, albeit well below historical average growth rates. This
will naturally have negative spill-over effects on our domestic economy.

++263
263 772
+263 772 4219
4219
419 693693
693 • +263•772 +263 772• 152 647 • +263 732 152 647
152 647
220
220oror
(Toll 080
080
free 800
on
help@fbc.co.zw
help@fbc.co.zw
@fbc.co.zw
all25/6
800 25/6( For
networks) Econet
( For Subscribers
Econet
220 • (Toll Only)
Subscribers Only)
free on Econet network only) 080 800 25/6
FBC Bank Limited
+263
+263242242704481/2
704481/2• 761198• •761198
756685 • •754232 • 756012
756685 • 754232 • 756012
FBC.Help.Centre
FBC.Help.Centre You Matter Most You Matter Most