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RBZ sets inflation targets

by Staff reporter
18 Feb 2020 at 05:42hrs | Views
ZIMBABWE is projected to record single digit monthly inflation this quarter with annual inflation seen coming down to about 50 percent by the end of the year.

Reserve Bank of Zimbabwe (RBZ) Governor, Dr John Mangudya, said this yesterday in his 2020 first half monetary policy statement where he also announced that the overnight accommodation rate of 35 percent, which was reduced from 70 percent, remains unchanged to promote confidence in the economy.  

Inflation remains the top enemy in the economy since the scrapping of the multiple currency regime in June last year and the subsequent liberalisation of the foreign currency exchange market. The RBZ believes its policy mix, which is anchored on monetary discipline and an efficient foreign exchange market, is critical in bringing consumer price and exchange rate stability.

"The stable exchange rate is set to anchor the country's disinflation programme through which monthly inflation is forecast to close the first quarter in single digit levels of below five percent. This trend will see the year-on-year inflation coming down to around 50 percent by December 2020," said Dr Mangudya.

"The confidence dividends from preserving the anchors of macro-economic stability, notably, inflation and exchange rate stability will help to manage inflation expectations and foster a conducive environment for increased production and productivity within the national economy, thus, underpinning the thrust of the 2020 National Budget."

Official statistics show that monthly inflation has consecutively declined for two months since reaching a peak of 38.8 percent in October 2019 to 16.6 percent in December 2019. The slowdown has been attributed to the decline in non-food inflation, which more than offset the moderate increase in food inflation.

Following introduction of a local currency, Treasury had suspended publication of annual inflation statistics, which it now expects to resume in March. At the time of suspension, annual inflation was hovering around 300 percent.

Dr Mangudya said the decision to keep the 35 percent policy rate per annum, which came into effect last November, was further endorsed by the Monetary Policy Committee (MPC) in its meeting last week.

"The interest rate on the medium-term bank accommodation facility was maintained at a level that reflects the yield on the open market for Treasury Bills, which is currently at between 15 to 18 percent per annum," he said.  

Going forward, Dr Mangudya said, the RBZ, through the MPC, would continue to proactively guide the market on the expected path of interest rates as part of its efforts to build on policy transparency and confidence.  

On the availability of cash for transactional activities, he said a decision has already been made to increase the quantity of bank notes and coins in circulation to try and reduce the inconvenience being faced by the public in accessing their cash at banks. To that end, he said an additional amount of $150 million was disbursed in the last quarter of 2019 to give a total of ZW$1.1 billion worth of notes and coins in circulation in the country as at December 31, 2019.  

This $1.1 billion represents 3,2 percent of total banking sector deposits of $34.5 billion as at 31 December 2019. However, Dr Mangudya said the monetary authority remains vigilant to keep money supply under check.

"The notes and coins were sold to local banks for distribution to clients in exchange for RTGS balances, so as to neutralise any expansion of money supply and therefore, inflation," he said.

"Accordingly, the cash injections to date have not increased money supply and thus managing inflationary pressures."

As such, Dr Mangudya said the central bank would continue to gradually increase the notes and coins to the desired optimal proportion of bank notes and coins in circulation of up to 10 percent of deposits agreed by the MPC to meet cash demand.

Treasury has already hinted on a gradual introduction of notes in larger denominations this year in an effort to improve efficiency and convenience to the public.

Despite the prevailing hurdles, Dr Mangudya expressed optimism Zimbabwe's economy would grow by about three percent in 2020 on account of increased international prices of key minerals such as gold, platinum and palladium, and coupled by the stable foreign exchange generation capacity of the economy.  

The country is also confident that this year's agricultural out-turn will be much better than initially anticipated due to improved rains received in January and February in most parts of the country.

Source - chronicle