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Prosper Ndlovu

THE high inflationary environment is likely to weigh heavily on citizens’ ability to afford credit and savings, the National Building Society (NBS) has said.

Although Government has instituted a number of fiscal and monetary reforms since the beginning of the year, with the view of stabilising the economy in the long term, the reforms have placed tremendous pressure on consumers who are experiencing high cost of living.

In its financial results for the half year ended 30 June 2019, NBS said the headwinds emanating from the reform process, coupled with subdued growth projections for the year in the wake of external pressures such as drought, were squeezing the banking business. 

“The highly inflationary environment impacted negatively on disposable income levels of our clients, weighing heavily on their ability to afford credit as well as save.

“In addition, cost escalations across major projects were felt resulting in the society (bank) having to suspend some projects,” chairman, Mr Stanley Kudenga, said. 

“The negative real rate of return on money market instruments resulted in clients pulling out of monetary assets, instead investing in alternative assets such as stocks and property where they believed value will be higher and value would be preserved. This resulted in tight liquidity in the financial markets.”

These conditions had a negative bearing on the bank’s balance sheet despite growth in loan book, he said. As such, Mr Kudenga said the society has had to re-configure and implement stringent cost containment measures to contain effects of inflation. 

The loss of value for earnings has generated anxiety across the country as prices continue to increase, fueled mainly by speculative foreign currency exchange rates on the parallel market. By June this year, official figures showed that year on year inflation stood at 175,6 percent from 56 percent per annum in January. 

Despite absence of official statistics, after Treasury froze publication of year-on-year inflation report, the figure is feared to be higher in view of the recent wave of price hikes. 

National Foods chairman, Mr Todd Moyo, in a statement accompanying the firm’s financial report for the same period, concurred that consumers have shouldered the brunt of the painful fiscal and monetary policy reforms. 

“The reform precipitated some necessary, although painful corrections in the domestic economy. The combination of significantly higher inflation, declining real incomes and further reduced formal employment, has placed tremendous pressure on consumers,” he said.

Chief among the reforms this year was the re-introduction of the local currency in June. The process began with the separation of local bank accounts into domestic and ‘nostro’ foreign currency accounts in October 2018. 

It was followed by the official inclusion of the RTGS dollar in the basket of currencies and the launch of the interbank foreign currency market in February. 

Over and above criminalising transactions in foreign currency, the central bank this week banned the use of cash-in and cash-out facilities on all mobile money platforms as well as cash back by retailers as part of measures to eradicate illicit financial deals.