HomeBusinessInflation charge unsettles monetary authorities

Inflation charge unsettles monetary authorities

BY TATIRA ZWINOIRA

THE Reserve Bank of Zimbabwe (RBZ)’s monetary policy committee (MPC) effected sweeping policy changes to stabilise volatile markets on Friday, as it disclosed that it had been unsettled by developments on the exchange rate and inflation fronts.

The parallel market exchange rate rocketed by 27% during the third quarter of this year, marking its steepest ever growth in one year, and sparking another inflationary charge.

This month alone, the parallel market forex rate has risen nearly 16% from to US$1:$185 with further evidence that it will may continue its relentless charge.

The increase, along with delays in foreign currency allotments from the auction system, has also caused the official exchange rate to rise to US$1:$97.13 from US$1:87,65 at the beginning of this month.

In a statement released after last Thursday’s MPC seating, the RBZ said it had noted serious buildups in both month on month and annual inflation rates.

“The MPC noted that the commitments made by the government, the bank (RBZ) and leaders of the Zimbabwe business community on 11th October 2021 have helped to stabilise the volatility of the parallel market exchange rate.

“The stability is expected to anchor inflation expectations and restore the downward inflation trajectory the economy has experienced since July 2020,” the central bank said.

“The MPC, however, expressed concern regarding the recent increase in month-on month inflation, from 4,7% in September 2021 to 6,4% in October 2021, and annual inflation from 51,5% to 54,5% over the same period, driven mainly by the resurgence in the volatility of the parallel market exchange rate.

“The MPC also welcomed the decision by the bank to take steps to be current with foreign exchange allotments from auction 63, whilst at the same time working towards clearing the ring-fenced auction backlog.”

The committee also agreed to increase the bank policy rate from 40% to 60% and the Medium-Term Bank Accommodation facility interest rate from 30% to 40% with immediate effect.

The policy rate hike was the second such measure taken by the RBZ this year, as it battled to deal with speculative tendencies.

This is not the first time that the RBZ has expressed concern that the markets were wandering into dangerous territory.

In a confidential report seen by our sister paper, Zimbabwe Independent at the beginning of the month, the RBZ, in view of exchange rate shocks, revised the year end annual inflation target for the year to between 35% to 53%.

This was up from the revised end targets of between 25% and 35%.

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