Mangudya’s Foreign Currency Exchange Rate Likely to Be Inflationary: ZIMCODD

Zimbabwe Coalition on Debt and Development (ZIMCODD) presented its analysis of the Monetary Policy Statement 2019 intoduced by the Reserve Bank of Zimbabwe (RBZ).  Governor Dr John Mangudya yesterday says the introduced exchange rate between the RTGS and other currencies is likely to be inflationary.

The social justice organisation says it is only worrying that the formal floating exchange rate is being introduced at a time when the country is heavily reliant on imports.

“With the high demand for foreign currency in securing fuel, electricity, medical necessities, cooking oil and water treatment chemicals, the exchange rate is likely to be inflationary,” ZIMCODD says.

The Governor’s Monetary Policy legalises the exchange of the Bond/RTGS and foreign currency including the US Dollar through banks thereby reversing the 1:1 US Dollar/ Bond note peg.

Mangudya’s Monetary Policy comes at a time when Zimbabwe recorded a year on year inflation of 56.7% in January this year.

“While the policy statement gives an assurance that mechanisms are in place to safeguard against inflation rate, the actual modalities and tools remain unclear,” ZIMCODD says.

“Worse still, the monetary policy statement is coming way after prices have risen to unprecedented levels.”

“It will be a miracle for the monetary policy to influence the reduction of prices given that prices are sticky downwards,” the justice group goes on.

Although there are fears of inflation, other economists say that inflation will be temporary.

“Much hype was on how the Monetary Policy was going to address the long standing currency question in the country,” ZIMCODD says.

“It is no surprise that the policy addressed the mythical 1:1 exchange rate between the Bond Note and United States Dollar (USD), which has been a major driver of income inequality and social discord in Zimbabwe.”