RBZ foreign exchange auction system failing to reflect market realities says economist – NewZimbabwe.com

By Staff Reporter

ECONOMIST Trust Chikohora has said the falling of the Zimbabwean dollar to above 1USD:ZWL2000 on the black market is a clear indication that the Central Bank’s foreign exchange auction system was failing to reflect market realities.

In an interview with NewZimbabwe.com, Chikohora said while a similar situation had been contained in 2022, it could easily result in hyperinflation this time around.

He said: “The Exchange rate has started to fall rapidly on the parallel market to an extent where now the parallel rate is now around ZWL$1800 against the official rate which is around ZWL$1000 that is an 80% disparity and it seems to be continuing to rise. This has been caused by increased money supply growth that has happened of late and also the fact that auction rate has continued not to reflect the realities of the market”.

Chikohora added that the country is slowly sliding into a hyper inflationary environment urging the government to act.

In the past days, retailers have doubled prices of goods and commodities in concerted efforts to contain the implosion of the Zim dollar.

“We have gotten back to a situation where there are opportunities for arbitrage between the auction market and the parallel market. A similar situation happened in the first part of 2022, and it took robust measures to curtail the situation. At this stage now, it seems to be going out of control again.

“And there is an impact on prices, because prices follow the parallel rate. We have seen a rapid price increase. This situation causes inflationary pressure and it now threatens to accelerate us back to hyperinflation, it is imperative that the government acts to arrest the situation.”

Added Chikohora: “You cannot have economic growth with hyperinflation. You cannot have investment with hyperinflation. Hyperinflation is probably the biggest threat towards the objectives of vision 2030. This is  a matter of great importance which the government needs to put in the highest level of priority.

“When this happened in the first half of 2022, measures were put in place which were able to arrest the situation. Tight money supply, limitation. Tight control of money supply growth is essential, it needs to be done, just like what was done last time. Even interest rates which were now being lowered by the RBZ need to be reconsidered, interest rates need to be at a level which is commensurate with the level of inflation”.