Times Of Swaziland: PRIVATE SECTOR CALLS FOR EFFECTIVE COORDINATION BETWEEN GOVT, CBE PRIVATE SECTOR CALLS FOR EFFECTIVE COORDINATION BETWEEN GOVT, CBE ================================================================================ Nhlanganiso Mkhonta on 26/09/2024 07:43:00 MBABANE – Business Eswatini (BE) has further noted that the monetary policy as managed by the central bank is often not supported by fiscal policy interventions from government. BE said this makes the road to price-stability and inflation-taming treacherously difficult to navigate – and longer. “We feel that that the process would be less fraught if there was an effective mechanism in the coordination between the two allied policies,” said BE. BE also noted that there is still a 75 basis point variance in the key benchmark rates between Eswatini and South Africa whose benchmark rate now stands at 8 per cent against Eswatini’s 7.25 per cent. Projections BE said this confirmed the independence of the country’s monetary policy regime. “It is therefore, against this backdrop that we would like to congratulate the central bank for going against the grain in their decision-making approach especially given the fact that projections for inflation and gross domestic product (GDP) growth for the next two years are not exactly uninspiring,” said BE. Recently, the International Monetary Fund (IMF) stated that at 7.5 per cent, the country’s policy rate was 75 basis points lower than that of the South African Reserve Bank (SARB). The IMF officials that were in the country, said the prolonged deviation from the SARB policy rate could generate risks, especially as the current account is expected to weaken. They said despite the interest rate differential, credit growth lags nominal GDP growth as domestic investment opportunities are limited. “Given the concerns about foreign reserve adequacy, aligning the Central Bank of Eswatini (CBE)’s rate with the SARB rate remains the first best option,” said the IMF. In response to this, the CBE Governor, Dr Phil Mnisi, said there was nothing wrong about Eswatini’s policy rate as it was 75 basis points lower than that of the SARB. He said this was simply because when the CBE and the Monetary Policy Consultative Committee (MPCC), decide on the monetary policy stance, they used the data of economic development domestically. He said this data includes the inflation rate, economic growth rate and the contribution to private sector lending. “We are comfortable with the policy we are taking, as so far, it has had no significant repercussions,” he said. He said there are always systems in place, ready to be used in cases of capital flight. He said, as the bank, they had their own fundamentals, which informed the country’s monetary policy. The governor acknowledged that because of the pegging of the Lilangeni to the Rand, ordinarily one would expect the same interest rate but that was not a given and it should be informed by macroeconomic fundamentals, which informed the policy decision. Workouts It is worth noting that the IMF further highlighted that buffers in the financial system were being rebuilt after the pandemic, but asset quality remained a concern. The IMF said banks were allocating their liquidity carefully, wary of rising NPLs and diminished credibility of the government and maintained a large excess reserve position at the CBE in the remunerated overnight call window. “Orderly workouts can alleviate stress and reduce risks,” said the IMF. The IMF Mission Chief for Eswatini Jaroslaw Wieczorek further highlighted that His Majesty the King recognised high poverty and unemployment as national emergencies and job creation was the focus of the FY24/25 budget. The private sector organisation said, there was a need to supercharge the country’s economy going forward and a low-interest rate environment was key in achieving the growth economic aspirations as a country.