Business Reporter
RESERVE Bank of Zimbabwe (RBZ) governor,Doctor John Mushayavanhu is faced with a tough test ahead in the wake of massive confidence decline around the six months old ZWG currency.
ZiG has been going through gradually decline, now its in sharp decline, approaching freefall and collapse stages.In a bid to rescue the much-hyped currency – which it claims is gold-backed and supported by hundreds of millions in foreign exchange – monetary authorities yesterday intervened with an array of urgent policy measures and tools, officially devaluing the local currency by 42.6% to close the parallel market exchange rate premium and narrow arbitrage.
This drastic devaluation of the “gold-backed” ZiG is a clear indication that the currency is in big trouble even though bullion prices have been stable.
Market, currency and exchange rate volatility have returned with a vengeance, fueling inflation and threatening to drive more companies to closure; worsening the already grim economic situation.
Speaking to the state run Sunday Mail , Mushayavanhu came out in defence of his move arguing it will be beneficial in the long term, much like his predecessors did with the other failed Zimbabwean currencies.
“The resurgence in exchange rate pressures since mid-August has necessitated a firm response,” Mushayavanhu told state-controlled The Sunday Mail.
“Despite stable conditions earlier in the year, recent market dynamics have driven inflation higher, with August recording a 1.4 percent inflation rate, up from an average of -0,82 percent between April and July.
“The widening premium in the parallel market is a clear signal that we need to restore confidence and keep inflation expectations anchored.These actions will help cool down demand-side inflationary forces and stabilise the broader macro-economic environment,”he said.
Zimbabwe is experiencing a surge in panic buying, leading to a rapid depletion of essential goods, particularly cooking oil, mealie meal, and flour. This crisis is primarily fueled by the ZiG’s instability, causing many to exchange it for food commodities. To prevent hoarding, some retailers under pressure to maintain adequate supplies have implemented a one-commodity-per-customer limit.
