Effect of RBZ’s move on interest rates

22 Jun, 2022 - 00:06 0 Views
Effect of RBZ’s move on interest rates

eBusiness Weekly

Business Writer

The decision by the Reserve Bank of Zimbabwe to move all interest rates on loans to not less than the
Bank policy rate will hit consumers hard, market analysts have said.

Findings by Financial Intelligence Unit (FIU) following investigations on possible abuse of loan facilities,
showed that some entities were the abusing the financial system for material benefit through taking
advantage of cheaper borrowing and repaying when exchange rates have been depreciated.

And as one of corrective measures, the RBZ directed that “No bank shall extend a loan to an entity or
individual at an interest rate below the prevailing Bank policy rate.”

The RBZ’s Bank policy rate currently stands at 80 percent.
While the aim is to deal with abuse of access to loans, the move will directly affect consumer behavior
and purchasing power.

An increase in interest rates means borrowing becomes more expensive which results in dampening
consumer spending.

Any significant increase in borrowing costs has a negative impact on overall consumer expenditure.
However, while personal loans were already closer or above the Bank Policy Rate, corporates that were
getting loans at the discretion of banks would be the hardest hit.

As business loans become more expensive business may hold back their expansion plans leading to a
downfall in new product offers.

Some businesses, according to Trigrams Analyst Walter Mandeya might decide to pass on the additional
costs to consumers, “but as this happens, consumers might be hard pressed to continue buying”.

“Higher interest rates increase the cost of borrowing, reduce disposable income and therefore limit the
growth in consumer spending,” Mandeya said.

He said under normal circumstances, the move could reduce inflationary pressures and cause an
appreciation in the exchange rate.

“However in this case, an 80 percent interest rate is still below the latest inflation figures of 132 percent
for the month of May, we still have negative real interest rates.

“So overall the move will result in the economy likely experiencing falls in consumption and
investment.

An employee with a local bank, said the decision on interest rates will affect both old and new loans.

“So those who borrowed when rates were around 40 percent, will now see their interest rate reviewed
upward,” who chose to remain anonymous.

She said the unfortunate part about interest rates increases in Zimbabwe is that savers remain stuck
with very low interest rates.

“Higher interest rates make it more attractive to save in a deposit account because of the interest
gained, but not here in Zimbabwe,” she said.

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