The Reserve Bank of Zimbabwe (RBZ) intends to increase cash
in circulation after realising that shortages are excluding the informal
sector, senior citizens and rural folk from fully participating in the economy.
RBZ governor Dr John Mangudya said this yesterday in the 2019 Mid-Term Monetary
Policy Review Statement themed “Transition to Normalcy”.
Dr Mangudya said he expected prices of goods and services
to have started stabilising or even falling substantially by February next
year.
But it is the shortage of cash that the RBZ wants to
immediately address to eliminate arbitrage opportunities through multi-tier
pricing, which has partly contributed to the surge in inflation.
Dr Mangudya said economic reforms instituted so far show a
more positive outlook on the exchange rate and inflation.
Zimbabwe’s annual inflation raced to 175,5 percent in the
eight months to June this year, from 5,39 percent in September last year, due
to the foreign currency parallel market exchange rates.
The reintroduction of the local currency in June this year
and subsequent removal of the US dollar as a transacting currency, means the
RBZ should issue adequate notes and coins to support the economy.
Due to the high cost of products when one is not using
cash, there is increased demand for physical cash, as reflected by unending
queues at banks. In addition, visitors to the country, including tourists were
failing to access.
“Failure to get cash is undermining the confidence in the
local currency, as well as forcing economic agents to resort to the illegal
transactions in foreign currency and to selling cash at a premium,” Dr
Mangudya said.
“Accordingly, without prejudice to our cash-light society
drive, which has served the country very well, the bank will continue to inject
additional notes and coins on a gradual basis, to support productive (sectors)
and lessen the inconvenience caused by physical cash shortages to the
transacting public.”
It is expected that cash injections into the market by the
RBZ will not result in an increase in money supply, as banks will use their
existing RTGS balances to exchange for cash.
Dr Mangudya said the central bank estimated that based on
historical cash levels and practices in neighbouring countries, the currency in
circulation should be between 10 percent to 15 percent of broad money supply.
Presently, Zimbabwe has about $15 billion in circulation.
Dr Mangudya believes the ongoing policy measures have
forced the parallel market exchange rate to start to converge with the
interbank rate, as foreign currency flows to the formal market improve.
He inflationary pressures should start to decline, as
retailers adjust their prices in line with the relative stability of the
inter-bank market and falling parallel exchange rate premiums. Herald
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