MPC Blames Parallel Market for Zimbabwe’s Inflation

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Reserve Bank of Zimbabwe’s (RBZ) Monetary Policy Committee (MPC) which met last week blames the parallel market for the inflation that hit 96.4% in April an increase from 72.7% recorded in March.

The MPC says the increase in inflation was as a result of a combination of global shocks and the pass-through effects of the recent exchange rate depreciation on the parallel market, with a significant proportion of the inflationary pressures emanating from the impact of the ongoing Russia-Ukraine conflict.

“The existence of strong economic fundamentals suggests that the recent exchange rate shocks are a manifestation of negative sentiments or perceptions attributable to people’s past experiences with hyperinflation and inevitable losses incurred during currency reforms,” RBZ governor John Mangudya said

“The Committee further noted that the erosion of people’s savings due to inflation compelled them to try and avoid similar losses by holding the US dollar as a store of value.”

Despite the increasing inflation, the Central Bank Monetary policy also noted that economic fundamentals in Zimbabwe are strong to support a stable exchange rate.

Strong economic fundamentals are evidenced by a favourable current account balance, positive growth of the real sector, public works undertaken by the Government, fiscal sustainability and a tight monetary policy stance according to the committee.

“The positive trend in foreign currency generation has seen the country realising US$2.4 billion in foreign currency receipts during the first quarter of 2022, an increase of 15.9% compared to foreign currency received during the same period in 2021. The foreign currency receipts were against foreign payments of US$1.8 billion, leaving a surplus position of US$1.9 billion in foreign currency accounts and national reserves,” Mangudya said.

“Money supply has also remained largely under control, with reserve money remaining stable at levels of around ZW$28 billion for the past six months, while annual growth in broad money fell from 384% in March 2021 to 151% in March 2022.”

Zimbabweans have been using the parallel market to access the USD despite the government calling foreign currency exchange on the streets illegal.

The gap between the parallel market and the RBZ foreign currency auction has been widening with the RBZ rate falling behind

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