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'Zimbabwe inflation to shoot up to 280% by year-end'

by Staff reporter
14 Jun 2019 at 08:26hrs | Views
INFLATION could end the year around 280% and may rise to stratospheric levels thereafter if a new currency is introduced without preceding macro-economic fundamentals, a local research firm has said.

Year-on-year inflation has surged to 75,86%, which is the highest since the introduction of the multi-currency regime in 2009. It has been driven by skyrocketing prices of fuel, basic commodities as well as currency volatility.

The currency volatility worsened after the Reserve Bank of Zimbabwe separated RTGS and foreign currency accounts in its Monetary Policy Statement in October last year. The situation deteriorated further when the central bank adjusted the exchange rate in February this year from 1:1 to US$1:RTGS$2,5.

Local research outfit Econometer Global Capital has projected that year-on-year inflation will end the year at 280%.

"As Econometer Global Capital, we see this figure rising to 280% by year-end mainly driven by foreign exchange movements on the market and subdued output in the real estate sector," it noted.

This is in stark contrast to government projections that inflation will be reduced to 15% by the end of the year
The research firm warned that plans by government to introduce a new currency will only worsen the economic crisis if it does not put in place conditions that sustain it.

President Emmerson Mnangagwa revealed at a rally in Harare last week the government will introduce a new currency by the end of the year, while also abandoning the multi-currency basket which has been in place over the last decade.

"While having a domestic currency is good for a sovereign state like Zimbabwe, the timing of such a monetary reform should be contextualised.

"In his Monetary Policy Statement in February, central bank governor John Mangudya liberalised the foreign exchange market as part of steps to embark on monetary reforms which should anchor any new currency," the local economic research body said.

"As long as productivity remains subdued and business activity continues to be depressed, any talk of introducing a new currency could unnerve the markets and drive inflation to new records in a post dollarised environment."

Econometer noted that after promising to ring-fence bank balances through a US$1 billion facility from the African Export-Import Bank, government made U-turn when it announced that bank balances would be traded on the interbank market which resulted in savings being wiped out due to the monetary reforms.

"The ensuing discord between the Finance minister and Reserve Bank of Zimbabwe governor John Mangudya was a PR disaster for government. Low confidence in the financial services sector is the collateral damage," the economic watchdog said.

Source - the independent

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