Monetary policy expected on Tuesday

06 Feb, 2022 - 00:02 0 Views
Monetary policy expected on Tuesday Dr John Mangudya

Business Reporter

Reserve Bank of Zimbabwe (RBZ) Governor Dr John Mangudya, who is expected to present the Monetary Policy Statement (MPS) on Tuesday this week, has his work cut out as the market expects him to unveil measures to further tame inflationary pressures and stabilise the exchange rate.

Inflation has threatened to rear its ugly head again owing to the continued loss of the local currency on the parallel market, which has negative pass-through effects.

“Most of the measures will be contained in the monetary policy to be presented before February 8, 2021, which is Tuesday next week (this week),” Dr Mangudya told The Sunday Mail Business in an interview last week.

He said the bank was hawkishly maintaining a “strict monetary targeting framework”.

There will be further measures to manage liquidity to prevent inflation and exchange rate volatility.

Latest statistics from the central bank indicate that reserve money for the week to January 14, 2022 increased by just over $27 billion. Last year, the quarterly money supply growth target was reduced from 22,5 percent to 20 percent.

Authorities noted some positives in efforts to maintain and improve the relative stability in the economy, especially regarding the disinflationary path realised in 2021, which was mainly underpinned by tight fiscal and monetary policies.

Although it has gained relative stability, the Zimbabwe dollar has shed significant value since it began being floated in February 2019.

The local unit now trades around $220-$240/US1 on the black market and $116/US$1 on the weekly foreign currency auction.

Inflation targets had to be revised last year as authorities grappled with taming volatile exchange rates.

However, the inflation rate continued to decline.

Fiscal and monetary authorities had initially forecast inflation to close the year at single-digit level, but this could not be met and the rate ended the year at 60,7 percent.

The Confederation of Zimbabwe Industries (CZI) continue to lobby Government to stabilise the local currency and make the foreign currency auction system more efficient.

In the 2022 Budget, Finance and Economic Development Minister Professor Mthuli Ncube indicated that there will be joint measures to achieve an average inflation target of 32,6 percent and year-end inflation of 15 to 20 percent.

The bank will thus seek to plug all loopholes that may continue to spur inflation, which touched a post-dollarisation high of 837,5 percent in July 2020, before decelerating to a two-year low of 56 percent in June last year.

Fiscal consolidation, which has eliminated budget deficits, and the monetary targeting approach have managed to slow inflation with relative success.

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