The Bankers Association of Zimbabwe (BAZ) has raised concerns that the recent devaluation of Zimbabwe Gold (ZiG) by the Reserve Bank of Zimbabwe (RBZ) could result in price hikes and potential shortages of key commodities.
Last week, the RBZ adjusted the official exchange rate from ZiG14.1 to ZiG24.3 per US$1. By October 2, 2024, the rate had dropped further to ZiG25.2 per US$1.
According to a leaked internal report, BAZ warned that if factors like high inflation and low investor confidence persist, the ZiG could rapidly depreciate, leading to inflationary pressures, especially for goods priced in foreign currency.
They also stressed the need for sufficient foreign exchange reserves to meet market demand while curbing excessive local currency issuance.
The association warned that a weakened exchange rate could push up the costs of imported goods, intensifying inflation in an already volatile economic environment.
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Essential items, such as food and fuel, are expected to become more expensive, impacting consumers.
BAZ noted that while foreign investors may appreciate a more flexible exchange rate regime, short-term currency volatility might still deter investment. They added that historical challenges with the local currency continue to undermine market confidence.
Additionally, BAZ cautioned that reducing the amount of foreign currency that individuals can take out of the country, from US$10,000 to US$2,000, might disrupt informal trade and lead to job losses in sectors like retail and transport. These sectors are vital in a country where formal employment is scarce.
Further, the association highlighted that the recent hike in the policy rate from 25% to 35% would increase borrowing costs, potentially curbing investment and contributing to inflation. They also expressed concerns about the 30% rise in statutory reserve requirements, which could strain banks’ liquidity.
In response, RBZ Governor John Mushayavanhu defended the policy changes, stating that increasing the policy rate and statutory reserves is necessary to control inflation and stabilize the economy. He added that banks unable to meet the new reserve requirements could seek assistance from the RBZ.
The RBZ rejected BAZ’s proposal to stagger statutory reserve payments, maintaining that the new measures would help strengthen the exchange rate over time.
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