
Harare Bureau
A COCKTAIL of measures by the central bank to tame the recent volatility of the local currency, the ZiG, has helped stabilise the market over the past couple of weeks by easing foreign exchange pressures, Reserve Bank of Zimbabwe (RBZ) Governor Dr John Mushayavanhu has said.
The central bank is confident that the stability will be sustained through a steady supply of foreign exchange on the interbank market.
The parallel market exchange has held steady at around US$1:ZiG35 for the last two weeks, against the formal market rate of US$1:ZiG24,3.
“The Reserve Bank is satisfied that the interbank market for foreign exchange is now calm following the recent depreciation of the currency, which has enabled the interbank market to align with obtaining market conditions, thus helping curtail some of the foreign exchange pressures,” said Dr Mushayavanhu.
“The Reserve Bank envisages that the flexible exchange rate will entice holders of free funds to also sell their foreign currency on the interbank market at favourable rates to meet their ZiG obligations, thus improving the foreign currency supply situation going forward.
“The market is awash with foreign currency as reflected by the increase in foreign currency receipts of 13 percent to US$8,4 billion for the first eight months of 2024, compared to the same period in 2023. Nonetheless, the Reserve Bank will also continue to regularly intervene in the foreign exchange market to meet transitory shortfalls.”
The RBZ, he said, has rolled out further measures to maintain monetary stability, including raising the bank policy rate to 35 percent and standardising statutory reserve requirements for both ZiG and foreign currency deposits at 30 percent, up from 15 percent and 20 percent, respectively.
“This will go a long way to further tighten liquidity in the economy and ensure sustained stability of the ZiG,” added Dr Mushayavanhu.
“In addition, the amount of physical cash an individual can take outside the country has been reduced to US$2 000.
“The Reserve Bank, through the MPC (Monetary Policy Committee), will, however, continue to review these measures in line with market developments and other fundamentals, mainly inflation.”
Prices of most basic goods in major retail outlets remained unchanged over the last week, with a standard loaf of bread retailing at around ZiG28,50 (about US$1,15), while the cost of a 20kg bag of mealie meal averaged ZiG250 (around US$10).
A 2kg pack of rice was selling for around ZiG80, while 2kg bag of washing powder was retailing for an around ZiG235.
Meanwhile, the retail price of a 2kg packet of sugar was around ZiG81. Dr Mushayavanhu said the central bank had injected over ZiG87 million in mint banknotes and coins into circulation since the introduction of the ZiG in April.
The bank, he added, is closely monitoring the market to ensure liquidity is maintained. “The country is still in a multi-currency system, whereby the ZiG co-circulates with other currencies within the multi-currency basket.
“Given that transactions in local currency were about 20 percent following the introduction of ZiG, the Reserve Bank has been limiting the amount of ZiG in line with developments in the market.
“The Reserve Bank will continue to assess the cash needs and the need for higher denominations from time to time in line with inflation developments and increased use of the domestic currency in the multi-currency system.”
Economist and member of the MPC Mr Persistence Gwanyanya said price stability in the market was a reflection of the efficacy of the central bank’s interventions.
“It only shows that the interventions by the central bank . . . are starting to be felt in the economy,” he said.
“The interventions were essentially to tighten the monetary policy and deal with the excessive monetary expansion. They are beginning to bear fruit.”
Going forward, he said, monetary authorities have committed to maintaining a tight monetary policy.
“What we have also observed is even the trade in the alternative market, the parallel market, has sort of subsided.
“There is not much trade happening there on account of the tight monetary policy.
“We only hope that this persists until the end of the year and going into next year, especially given the possible pressures that will come from the new season, the agriculture season, demand for inputs, which naturally pushes the demand for foreign currency.”