THE market should expect significant restoration of stability in the pricing of basic goods in response to comprehensive Government measures while disciplinary action will be swiftly meted against businesses that fuel exchange volatility by dipping their hands in the parallel market, Reserve Bank of Zimbabwe (RBZ) Governor, Dr John Mangudya, said yesterday.
His response comes on the back of a widespread consumer outcry over the recent spate of ridiculous speculative price increases, which are being driven by wild parallel market rates.
The prevailing exchange instability has prompted Government to adopt a raft of interventions geared at stabilising the economy by consolidating the fiscal and monetary policy gains achieved so far under the Second Republic.
The measures are expected to restore income value and consumer purchasing power, which is critical in sustaining a sound economic base.
Authorities admit the resurgent currency volatility is piling enormous pressure on the exchange rate, as the skewed preferences for forex usage have continued to increase the velocity of the Zimbabwe dollar.
Based on the latest price increases and using the Consumer Council of Zimbabwe indices guidelines on prices of basic goods, our news crew established that the cost of living for a family of six now hovers around $521 068 per month excluding transport, rentals, bills, and school fees.
Last month ZimStat indicated that the cost of living had risen by 11 percent to $198 264 for a family of six ($33 044 per individual) in April from $29,778 per individual in March.
The phenomenon has seen a growing US-dollar cash economy, which now accounts for almost 80 percent of transactions, according to official statistics.
Among the top measures to restore stability is the suspension of duty on the importation of basic goods, 100 percent retention on domestic sales in foreign currency starting this month, and fine-tuning the Foreign Exchange Auction System, among others. The RBZ has already started the pre-announcement of an envelope of $15 million allocation at the forex auction, which is expected to stabilise the exchange rate.
Dr Mangudya said these measures are expected to yield the desired market in the short term, with positive responses possibly by the end of this month.
In particular, he said the monetary policy measures would tame exchange volatility to a level in which the gap between official, which is hovering around US$1: ZWL$1 404, and parallel market rates of above US$1: ZWL$ 2 500, will be narrowed.
“As announced last week, beginning tomorrow (today) the auction system will start using a pre-announced envelope on a pure Dutch auction basis. What it means is, when bids reach US$15 million, no more money will be allocated. By doing so we are reducing the premium in the market,” said Dr Mangudya.
“Our expectations are that there will be a narrowing of the official exchange range and the parallel market rates due to the refinement of the auction system. Therefore, by the end of the month, consumers should expect to witness a modicum of stability in prices of basic commodities.”
Economists have been calling on the central bank to fine-tune the auction system stressing the need for the platform to be effective and efficient so that it continues to benefit the productive sector.
Dr Mangudya said the opening up of the importation of certain basic commodities will have a huge bearing on the prices locally. He warned errant businesses that are accessing foreign currency from the auction system, but then spin the forex in the black market with the sole aim of purchasing some products using the local currency for resale in the black market at exorbitant US dollars.
Tough measures are being taken to drastically reduce the black-market rates as the goods will be available at far reasonable prices, he added.
“Some wholesalers are accessing forex in the auction system and order goods in neighbouring countries to sell at exorbitant prices.
“For instance, it won’t make sense for wholesalers to buy an item for US$70 in neighbouring countries with the intention of selling at US$150 when the same commodity is sold for, say, US$75,” said Dr Mangudya.
“What we are simply doing is check-mating products and in the process protecting consumers.”
In addition to milk powder and washing powder, the Government’s list of duty-free imports includes basics such as maize meal, rice, milk, flour, salt, cooking oil, sugar, petroleum jelly, toothpaste, bath soap, and washing soap.
“We have been there before and we do not want to go that path again. Dollarisation benefits are short-lived, and it will leave us very uncompetitive in the region,” said Dr Mangudya.
“All the measures announced and implemented are meant to instil confidence in the market.”
