The Deputy Minister of Finance, Economic Development and Investment Promotion Kudakwashe David Mnangagwa, has said the Government is fully aware of the economic pressures destabilising the foreign currency exchange rate and pushing up the prices of goods and services.
Mnangagwa said the Treasury and the Reserve Bank of Zimbabwe (RBZ) are working on solutions to the exchange rate volatility.
The RBZ’s auction system is poised to commence this week which is expected to stabilise the exchange rate.
In an interview with Sunday News on Saturday, Mnangagwa said that the Treasury was fully aware of the prevailing economic environment. He said:
As Treasury, we are fully alive to the economic environment currently prevailing. We will not go into a debate as to what the causes are, whether it is speculative, fundamental-driven, mischief or a January rush phenomenon, but what is of concern is that it is happening and I can assure you we have our fingers on the pulse.
The Ministry in conjunction with the monetary authority are plotting a concrete solution so that we can move past this undesirable phase.
The interbank rate has also been on an upward trend over the past two weeks, rising from US$1 was ZWL$6 192,4022 on 2 January to ZWL$8 331,6206 for US$1 by 12 January.
Economist and Reserve Bank of Zimbabwe (RBZ) monetary policy committee member, Persistence Gwanyanya stated that the volatility was caused by low foreign currency inflows. Said Gwanyanya:
The inflows of foreign currency have slowed down in the last quarter of the year and this is attributable to the softening of global commodity prices given Zimbabwe depends 85 percent on mineral exports.
Naturally, because of that unhealthy concentration in our economy, we are always found in this position when global commodity prices soften.
But this coincides with our traditional weak period which is the last quarter of the year.
In the last quarter of the year, the supply of foreign currency naturally dips because tobacco inflows would have ceased on the closure of tobacco auction floors (tobacco selling period).
The supply also dips because demand for foreign currency would have increased on account of agriculture imports and stocking for the festive season. So traditionally this is our weak period…
You would know that all the mentioned problems above happen when the auction system would have closed and this is where the rest of the economy normally sources foreign currency.
So the solution is, that the auction is probably opening this week and we expect that it absorbs some pressure on the foreign currency.
Gwanyanya said it is possible to get the situation back to normal with the rate going down, like what happened in May last year.
The Zimbabwe dollar fell by 21% last week on the official market, a drop that leaves the currency 91% weaker than it was this time last year
The Zim dollar traded at ZWL$8 240 per US dollar on Thursday, down from ZWL$6 467 earlier in the week, according to Reserve Bank of Zimbabwe (RBZ) data.
The Zim dollar started 2023 at ZWL$705 to the USD on the official market and around Z$1 000 at the black market.
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