Thursday 4 April 2024


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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