The surprise ending brought to the multi-currency era by statutory instrument 142 of 2019 is nearly a month old. The instrument has had mixed fortunes at best. The primary reason for the SI was to arrest inflation via the exchange rate based pricing model that had become common in the country, that unfortunately did not work out as prices jumped. The one success it can be credited with, though very much in the short term, is bringing stability to the exchange rate between the Zimbabwean dollar and the US dollar in both our domestic markets.
Immediately after the introduction of the instrument, we saw the rate drop and in the subsequent week, the rate resumed an upward trajectory. Finally settling at around 8.8 on the interbank market (sell only) and around 10.5 on the parallel market these levels have held for over two weeks. Now I know you’re thinking “it’s only two weeks” however we need to be honest about where we are coming from. We are just stepping out of daily rate increases so any sign of stability or minimal movement is welcome.
For those living through the situation, the importance of a stable rate need not be explained. The stability is key to planning and our nation currently needs a lot of that. One particular area of concern is wages which have surely been torn to shreds by inflation. Our official inflation figure was reported at 175% year on year while no salary in the nation has seen that much growth. Many suggest much higher real rates of inflation though.
Unfortunately, the birds are coming home to roost in other areas where the government has lacked an adequate investment drive. Owing to infrastructure challenges out electricity and water situations may well be at the worst they have ever been. The long power cuts have started to affect the productivity of large & small manufacturers and now utility-like mobile money transfer company Ecocash has been affected too. Taking advantage of this rate stability will not be easy or at all possible if the status quo is maintained.
Yesterdays 23% fuel price hike may yet have an effect on the exchange rate but it shouldn’t provide a major shock. If and how long the exchange rate will hold at this level depends on what comes next. The country is currently in limbo waiting for the midterm budget to be announced by Finance Minister Professor Mthuli Ncube.