daniel chigunwe
Business Writer
The country’s local currency, the Zimbabwe Gold (ZiG), completed a week of strengthening with the central bank saying it has allowed “greater flexibility” in the exchange rate.
The central bank devalued the ZiG by 43 percent from ZiG13/US$1 on the 27th of September 2024 to ZiG24,39 and went on a 14 percent losing streak to ZiG28,6829/US$1 on the first of November 2024.
However, the local currency has been strengthening and opened last week trading at ZiG27.9986 to US$1 and closed trading at ZIG25.5893 to the greenback, reflecting a 9,4 percent gain in the five days to Friday morning.
And speaking at a pre-budget parliament seminar, on Wednesday, RBZ deputy governor, Dr Innocent Matshe, said the central bank had allowed greater flexibility in the exchange rate.
“This will allow full and continuous discovery of the market exchange rate with limited intervention by the Bank,” Dr Matshe said.
He said the apex bank is of the view that the interbank market should largely reflect also the domestic inflation developments.
“As such, the Bank plans to align the exchange rate with market conditions or towards a market clearing exchange rate.”
The deputy governor said the Bank expects that the recent monetary policy measures, such as a hike in interest rates, will promote stability of the ZiG and anchor inflation expectations.
He, however, said the Monetary Policy Committee will continue to monitor monetary conditions and ensure that the exchange rate developments reflect fundamentals.
Dr Matshe said to durably ensure continued stability in inflation and exchange rate, there are key policy imperatives that should be in place to underpin the 2025 National Budget.
One of these is prudent fiscal management with no recourse to the central bank.
“It is therefore, imperative for exchange rate and inflation stability that under the 2025 National Budget there is no recourse to the central bank for accommodation,” said Dr Matshe.
According to Dr Matshe, there is also a need for continued tight monetary policy to ensure anchoring of inflation expectations.
He said the optimal growth enhancing level of money supply must be contained between 5 to 7 percent per annum to support the envisaged growth path under the 2025 National Budget.
Further, it is imparative that Government continues to increase the scope for the exclusive use of the local currency in the settlement of taxes including QPDs, fees, charges and other government services.
There is need for “increased and wider use of the domestic currency in the economy,” the deputy governor emphasised.
Other notable imperatives highlighted by Dr Matshe include enhanced collaboration between Government and Reserve Bank to ensure optimal liquidity management as well as continued accumulation of international reserve assets to the international benchmark of 3 months import cover.
Bongani Ndlovu