eBusiness Weekly
Economy Uncensored with Tapiwanashe Mangwiro
It has been a whole month since business, industry and citizens expected the Reserve Bank of Zimbabwe Governor, to announce the 2024 Monetary Policy Statement (MPS) but indications are now there that it might come early April as Dr John Mushayavanhu assumed office on Thursday.
However, the delay has left the country with no policy direction regarding monetary issues and the first quarter of the year is done.
Citizens and companies have begun taking defensive positions and the stock market and the parallel market have been reflecting just that.
The authorities have said that they are close to giving us the much-awaited policy direction, but they have been held up by the introduction of a ‘Structured Currency’ which President Emmerson Mnangagwa said will be coming to save the struggling local currency.
However, the delay has catastrophic effects on the economy and its projections as business and industry walk around blindly.
German economist, Allan Schreuder, once said; “In a volatile economy, where uncertainty reigns supreme, the timing of monetary policy announcements can have profound effects on businesses and the broader economic landscape. When such announcements are delayed, it exacerbates this uncertainty, leading to a range of impacts.”
Firstly, delayed monetary policy announcements can heighten market volatility. Markets thrive on certainty and forward guidance from central banks. Any delay in announcing monetary policy decisions leaves investors and businesses in the dark, prompting knee-jerk reactions in asset prices.
Stock markets may experience increased fluctuations as investors grapple with the uncertainty surrounding interest rates, inflation expectations and overall economic outlook.
Moreover, delayed monetary policy announcements can impede business planning and investment decisions. Businesses rely on clear signals from central banks to gauge future borrowing costs and overall economic conditions.
A delay in these announcements leaves businesses uncertain about the direction of interest rates, hindering their ability to make informed decisions regarding capital expenditures, hiring and expansion plans.
This uncertainty can lead to a slowdown in investment, further dampening economic activity.
Furthermore, delayed monetary policy announcements can impact consumer confidence and spending patterns.
Consumers are sensitive to changes in interest rates and overall economic conditions.
When monetary policy announcements are delayed, it adds to the general sense of uncertainty, causing consumers to hold back on discretionary spending. This can have ripple effects throughout the economy, affecting industries such as retail, automotive and housing.
In addition, delayed monetary policy announcements can complicate the central bank’s ability to effectively manage inflation and unemployment.
Monetary policy operates with a lag, meaning that decisions made today may take months to fully impact the economy. Any delay in announcing policy decisions can delay the implementation of measures aimed at achieving the central bank’s dual mandate of price stability and maximum employment.
This delay can result in an overheating economy if policy tightening is delayed, or conversely, it can prolong economic downturns if policy accommodation is not implemented in a timely manner.
Hints of a new currency regime by authorities only add to the uncertainty facing businesses.
A shift in currency policy could have significant implications for businesses engaged in international trade, as it may impact exchange rates, transaction costs and the competitiveness of exports and imports.
Industries with high exposure to foreign markets, such as manufacturing, tourism, and technology, would closely monitor any developments regarding the new currency regime and adjust their strategies accordingly.
Delayed monetary policy announcements coupled with speculation about a new currency regime can trigger volatility in financial markets.
Investors may react nervously to the uncertainty, leading to fluctuations in stock prices, currency values, and bond yields.
This volatility can have ripple effects on businesses, affecting their access to capital, cost of borrowing, and overall financial stability.
The delayed monetary policy announcement may influence consumer sentiment and spending behavior.
Consumers are sensitive to changes in interest rates and overall economic conditions. The uncertainty surrounding monetary policy and currency regime can erode consumer confidence, leading to a slowdown in spending on big-ticket items such as housing, automobiles, and durable goods.
This can have adverse effects on industries reliant on consumer spending, such as retail, real estate, and automotive. Conclusively, the effects of delayed monetary policy announcements in a volatile economy are multifaceted and far-reaching.
They can exacerbate market volatility, impede business planning and investment decisions, dampen consumer confidence and spending, and complicate the central bank’s ability to manage key economic indicators.
Therefore, timely and transparent communication from the central bank is essential in navigating the complexities of a volatile economic environment and minimising the adverse impacts of uncertainty on businesses and the broader economy.
Tapiwanashe Mangwiro is a resident economist with the Business Weekly and writes this in his own capacity. @willoe_tee on twitter and Tapiwanashe Willoe Mangwiro on LinkedIn
