NEW Reserve Bank of Zimbabwe (RBZ) Governor Dr John Mushayavanhu will present the eagerly awaited 2024 Monetary Policy Statement (MPS) this afternoon with expectations high that the central bank chief will come up with policy measures to stabilise the domestic currency and tame rising inflation.
Dr Mushayavanhu will present his first MPS after officially
commencing his duties last week. The policy will usually have been delivered by
end of February, latest, but was delayed to allow for wider consultations.
He begins his tenure amid sustained depreciation of the
Zimbabwe dollar, which has seen all economic agents needing to adjust prices,
tariffs and service charges constantly to remain afloat.
Depreciation threatens the survival of the domestic
currency, according to the Confederation of Zimbabwe Industries, which recently
said that as a result of the currency volatility, the environment had become
tough to operate in.
High inflation forced Zimbabwe to scrap its domestic
currency in February 2009. By that time, people’s hard-earned savings and
pensions had been reduced to nothing.
It is the hope of businesses and individuals alike that the
new central bank chief will have an ace up his sleeve and pronounce measures
that quickly restore the value preservation function for the domestic currency.
It is widely anticipated that among the MPS solutions would
be the proposed structured currency announced by President Mnangagwa in
February this year when he addressed the first Cabinet meeting of 2024.
However, Monetary Policy Committee member Mr Persistence
Gwanyanya said that while many analysts seemed to confine their expectations to
the structured currency, the MPS entailed several monetary issues and
interventions.
These included policy measures to control the velocity of
money, quantity of money in circulation and interest rates.
He said the MPS would not solely dwell on the exchange rate
policy, but cover all aspects of the monetary system, including controlling
monetary aggregates to ensure stability in the economy.
“But the way some people are talking about the structured
currency is as if the Governor is presenting an exchange rate policy.
“The economy also requires a well thought out MPS to have
stability in the economy, which the Governor will deliver.
“Naturally, the MPS speaks to issues like money supply
control, measures to deal with velocity and the quantity of money in the
economy for durable stability.
“Monetary policies also speak about interest rates and how
they affect the growth of money supply and promotion of the growth aspirations
of the economy,” he said.
However, other analysts said the new currency, expected to
entail a combination of fiat and asset-backed currency, to be backed by hard
assets and foreign currency reserves, should anchor the stability of the
domestic currency and the economy in general.
At the height of inflation in Zimbabwe in 2008, the
International Monetary Fund reported annual inflation to have climbed to 500
billion percent, although the Government reported the rate at 208 percent at
the last official count in August.
Notably, Zimbabwe has struggled with its exchange rate
since multilateral lenders stopped extending credit at the turn of the
millennium when the country defaulted on its loans, especially to the IMF,
World Bank, African Development Bank and Paris Club.
Dependency on imports, following about two decades of
economic meltdown, has also increased the appetite for forex, putting pressure
on the local unit.
Zimbabwe’s economy also suffered from the illegal economic
embargo imposed by the West following the land reform programme, which saw the
country globally alienated.
This has denied the country access to affordable lines of
credit, making it difficult for the country to implement measures to defend its
domestic currency.
Commenting in its monthly update on inflation and currency
developments for February 2024, CZI said despite the decrease in the premium
between the parallel and official exchange rates in recent months, the rate of
depreciation of the local currency was worrisome as this was directly
responsible for the inflationary environment.
CZI noted that the Zimbabwe dollar continued to depreciate,
both on the formal and the parallel market.
It said since January 2024, the domestic unit had lost more
than 49 percent of its year-opening value on the formal market and 30 percent
on the parallel market.
Zimbabwe’s annual inflation rose to a seven-month high of
55,3 percent in March from 47,6 percent in the previous month, the National
Statistics Agency (ZimStat) said.
Zimbabwe’s local currency has depreciated faster on the
formal market, raising hope of convergence between the two exchange rates,
which would eliminate pricing distortions in the market.
The disparities between the official and parallel market
rates present pricing headaches for business operators who are only required to
place a 10 percent margin on the official exchange rate when pricing their
goods.
“Near convergence of the parallel market and the formal
exchange rate gives formal business a fighting chance.
“Therefore, measures that address currency depreciation
while ensuring convergence of the official and the parallel market exchange
rate remain critical.
“Despite the convergence, the rate of depreciation of the
Zimbabwe dollar is worrisome as this is directly responsible for the
inflationary environment. The need for a consistent adjustment of prices,
tariffs as well as all service charges in line with the depreciation of the
exchange rate makes the investment environment difficult to operate in.
“The World Bank also noted that inflation is a constraint
for private sector development in their Country Private Sector Diagnostic
(CSPD) report that was launched on March 1, 2024,” CZI said.
“High and sustained inflation affects both input and output
markets and makes it difficult to undertake long-term planning or investments.
“The country is now highly dollarised with more than 80
percent of transactions in US dollars, which is also reflected in the
methodology used in blending inflation,” the industrial lobby group said.
The Government has instituted several policy interventions
to restore normalcy to the domestic macro-economic environment, including
hiking interest rates.
At 145 percent, Zimbabwe currently has the highest bank
policy rate in the world.
Last year, the Government transferred external payment
obligations to Treasury in the hope of controlling the creation of excess
liquidity, but the measures had short-lived success.
Other interventions included the Government’s directive
that import duties be paid in local currency except for luxury goods while 50
percent of corporate tax had to be remitted in local currency.
Harare-based economist Mr Brains Muchemwa recently said the
Government needed to take bold measures to create demand for the domestic
currency, which would strengthen it.
Mr Muchemwa said this could be achieved if the Government
demanded that all taxes be paid in local currency.
He noted the Structured Currency was doomed to fail unless
policymakers created a functional demand for the local currency.
“Government will need to take bold measures to create
demand for the Zimbabwe dollar, by obligating that all taxes be payable in
local currency, without which the local currency will be an orphan,” Mr
Muchemwa said. Herald
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