Mangudya defends new currency measures

RESERVE Bank of Zimbabwe (RBZ) governor John Mangudya says recent official exchange rate adjustments will help in mopping excess liquidity in the market and stabilise the currency and inflation.

The forex auction and interbank rates have reached US$1:$366 and US$1:$371, respectively following the introduction of the willing-seller willing-buyer policy.

On the parallel market, the Zimbabwe dollar was last week trading at around US$1:$700, while the country's annual inflation jumped to 191,7% in June from 131,7% last month, as price hikes continued.

In a presentation made on his behalf by William Manhimanzi, RBZ deputy director for financial markets, during the just endded Zimbabwe National Chamber of Commerce annual congress in Victoria Falls, Mangudya claimed economic fundamentals were sound.

"Recent official exchange rate adjustments will help in mopping excess liquidity and thereby stabilise the exchange rate and inflation in the outlook period," he said.

"Decisions by the MPC (Monetary Policy Committee) to pursue a positive real interest structure is expected to support stability of exchange rate.

"The interbank willing buyer willing seller is now the benchmark price of forex in the economy.

"The forex auction system will continue with the auction rate being informed by the willing buyer willing seller exchange rate. Interbank forex system is constrained by lack of trading amongst banks due partly to compliance and geopolitical crisis."

The governor said confidence building was a process and measures being taken by government and the central bank were designed to address negative sentiment affecting economic dynamics.

"We need to work together to reduce speculative pricing models as these are not good for the economy, they are inflationary business models and not sustainable.

"We are punishing ourselves and the consumers, they further erode and undermine business confidence and are therefore counterproductive," he said.

"Current strong economic fundamentals, coupled with recent policy measures will foster a positive economic outlook.

"Consequently, the current dual currency (multi-currency) system is the most appropriate payment and transacting system for the country. It's the best of both worlds. Let's all jealously guard it. It's good for everyone."

He also reiterated that the balance of payments position was strong and the country was generating adequate foreign currency with US$9,7 billion received in 2021 against foreign payments of US$7 billion.

"The foreign receipts for 2021 are the highest ever since. The country has so far received foreign currency amounting to US$4,5 billion as at May 31, 2022, around 34% increase from the same period last year."

About US$1,7 billion is sitting at the banks while US$1 billion is in reserves.

Mangudya said money supply has been under check with reserve money stable at around $29 billion since March 2022. Fiscal consolidation is also in place—no borrowing from the central bank, he said.

"Exchange rate volatility is, therefore, not a result of weak economic fundamentals. Instead, confidence is being affected by the strong appetite to hold onto US dollars for store of value as a defence mechanism to hedge against past experiences of hyperinflation and loss of value due to currency reforms, resulting in speculative pricing behaviour by business and general market indiscipline."

The central bank chief said there were two demands for forex and these were import demand and store of value demand.

Mangudya said about US$3,3 billion has been allotted since the start of the auction system in June 2020 and about 70% of this had gone towards the productive sectors, including capital equipment and raw materials imports.

He said the foreign exchange auction backlog was being attended to as a matter of urgency.