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Africa Moyo Deputy News Editor
Reserve Bank of Zimbabwe (RBZ) Governor Dr John Mangudya has called for price stability, adding that the practice of linking prices to foreign currency exchange rate developments was unacceptable in an environment where most of the costs incurred by companies were in the Zimbabwe dollar.
Economic analysts have also criticised the indexing of prices to the movement of the foreign currency rate, and implored Government to clamp down on the malpractice.
This comes as prices skyrocketed last week following a spike in the foreign currency exchange rate, prompting the RBZ’s Financial Intelligence Unit (FIU) to freeze accounts of some companies that were suspected to be feeding the parallel market rate for forex.
By Thursday afternoon last week, the exchange rate shot up to US$1: $26, from US$1: $14, sparking crazy prices of goods that are way beyond the reach of many.
The price of 10kg roller meal has increased to $71 from about $30 in the last few weeks, while some shops are selling beef at $70 per kg from about $35.
Despite a fall in the exchange rate late Thursday last week to about US$1:$15, retailers and wholesalers are yet to reduce prices.
Dr Mangudya told The Herald from New York, United States of America last night that exchange rate stability was key to stable prices.
“Foreign exchange rate stability is essential to ensure that there is price stability because there is what is called ‘pass through effects’ each time the forex rate rises,” said Dr Mangudya. We want it (exchange rate) to stabilise.
“There are two things that are required; the exchange rate should stabilise and we need to delink the exchange rate developments and price movements because not everything is imported.
“The price of labour and utilities such as Zesa and water is paid in local dollars, so we should delink prices from the exchange rate movements.”
Economist Mr Persistence Gwanyanya last night slammed the indexing of prices to the forex rate, saying it was “a real challenge as it limits the benefits of using our own currency”.
“As long as we continue with this indexing practice, we are as good as still dollarised, which speaks to the need for policymakers to come up with measures to support real re-dollarisation,” he said.
Mr Gwanyanya said while linking prices to the exchange rate had become a common practice during the multiple currency system and can, therefore, not “disappear overnight”, it was important for policymakers to support the local currency through “setting a clear, unambiguous policy direction”.
“If we get to the desired position level, we will start to enjoy the benefits of using our own currency, which include lower costs of production. It’s always an advantage of using your own currency so that you preserve forex for the country’s importation needs,” said Mr Gwanyanya.
National Business Council of Zimbabwe president Mr Langton Mabhanga said the rampant price increases by some manufacturers, wholesalers and retailers, “do not reside in any rationale, reason or moral conduct”.
“The inflamed cost build-up models currently being exercised have a potential to retard TSP (the Transitional Stabilisation Programme) that had gained much traction to transform the economy.
“The duplicity of some employers who are quick to increase prices of commodities, yet are not doing the same to the employees’ salaries is undermining the dignity of the working class in Zimbabwe.
“One would have thought that had the National Competitiveness Commission been up to its mandate, there would have been empirical counsel by sub-sector on how an increase in the price of any of the cost driver variables would impact on the ultimate price of the commodity.”
Online Reporter