By Alois Vinga
LOBBY group, Confederation of Zimbabwe Industries (CZI) says the raft of policy measures employed recently will start easing inflationary pressures from end of June 2023.
Last month, the Treasury announced two sets of measures which include a commitment to fund 25% export surrender requirement, maintaining US$ cash withdrawal tax at 2%, adoption of all external loans by RBZ and increasing consumers’ access to basic commodities – by lifting import restrictions on basic goods.
Among other measures, treasury also liberalised the Dutch Foreign Currency Auction further by allowing the market to determine the exchange rates through the Willing Buyer Willing Seller (WBWS) system where banks receive foreign currency from the central bank at a wholesale floor price for onward sales to their clients.
Soon after the inception of the measures the value of the ZW$ depreciated massively on both the parallel and official market to the current rate of US$1: ZW$ 6 926, prompting many to speculate an outright downfall of the local currency.
However, the latest CZI report on Inflation and Currency Development for May 2023 is optimistic that inflation will begin to ease from the end of June 2023 going forward.
“Some of the sources of money supply growth was the funding of the surrender requirements. The RBZ had to release ZWL$ into the economy to pay for the foreign currency that it would be liquidating to exporters and use it to pay external loan obligations.
“This means that they were taking out US$ from the economy and releasing ZWL$ into the economy, resulting in an increase in money supply. Therefore, the transfer of the obligation to the treasury seeks to address money supply growth,” said CZI.
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The industry group said another critical piece of the puzzle is creating demand for the local currency and the new measures have put in place some measures to create demand for the ZWL$.
CZI welcomed measures announced as part of inflation stabilization strategies, saying the auctioning of only US$5 million with immediate settlement within 24 hours to provide superior price discovery for foreign as opposed to auctioning US$15 million with uncertain settlement.
Industry said the emergence of a fully functional interbank market was the missing piece in the reforms saying it is important for banks to be able to match the forex demand and supply dynamics of their customers through the banking system.
Industry said the new revenue measures also appear well balanced with a reduction of the IMTT on forex payments domestically to 1% being a relief to businesses that have been banking and officially trading using the US$.
“It will take some time for the impact of the measures to trickle down the whole economy. If the measures are properly implemented, the parallel market exchange rate is expected to start showing stabilising momentum towards the end of June 2023.
“Once stability is achieved, the blended inflation rate would be expected to mask the full impact on the ZWL$ inflation,” added CZI.
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