Inflation is expected to stay low for the rest of the year due to strict financial and government policies. These policies have kept the local currency stable since it was introduced in April.
At the start of the year, there were significant problems with the exchange rate, causing inflation to rise unpredictably.
During the 2024 mid-term budget review, Finance Minister Mthuli Ncube reported that the exchange rate weakened from $6,192.40 per US dollar in January 2024 to $30,674.32 per US dollar by April 2024. To address this, the government introduced a new currency, the ZiG, on April 5, 2024, as part of their plan to move away from using the US dollar. The goal is to stabilize the economy and boost local production and exports.
Minister Ncube expects the economy to grow by 2 percent in 2024, 6.5 percent in 2025, 5.1 percent in 2026, and 5.2 percent in 2027. The projected growth for 2025 is higher than the National Development Strategy target, mainly due to expected favorable weather conditions.
The ZiG is backed by a mix of foreign currency and precious metals like gold. Minister Ncube said the government will continue using financial policies that build trust and acceptance of the new currency. Over time, this is expected to reduce reliance on foreign currency and increase the use of the local currency.
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Using a strong foreign currency has limited the government’s ability to control inflation and has hurt the economy’s competitiveness. Since the ZiG was introduced, its exchange rate with the US dollar has been stable, helping to keep inflation low.
Minister Ncube stated that the stable exchange rate has reduced inflation pressures and increased market confidence. As a result, the gap between the official and parallel market exchange rates has narrowed. The Financial Intelligence Unit and other agencies have been effective in maintaining market discipline.
The stability of the ZiG brings several benefits to the economy, including stable prices and exchange rates, with low inflation expectations in the short to medium term.
As of May 2024, the total amount of reserve money, which affects exchange rates and inflation, was ZiG6.6 billion, slightly up from ZiG6.5 billion in April 2024. This reserve money includes ZiG5.6 billion in foreign currency and ZiG1 billion in local currency. The local currency portion was equivalent to US$77.4 million, much lower than the US$349 million backing it with international reserves.
Additionally, the total amount of broad money, which includes all currency and deposits in the economy, was ZiG41 billion at the end of May 2024, a 5.9 percent increase from April. This broad money was mostly made up of foreign currency deposits (80.4 percent) and a smaller portion of local currency (19.6 percent).
Minister Ncube noted that the proportion of foreign currency in broad money has been decreasing, indicating more use of the local currency in the economy.
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