The central bank’s Monetary Policy Committee (MPC) is cheering the drop in month on month inflation for August to 12.4% from 25.6% in July.
It says the drop was expected while annual inflation will continue rising to reach an annual peak in September 2022 due to the lower base effect in 2021.
The drop in inflation, the MPC said, is on the back of tight monetary policy stance, favourable uptake of the gold coins and effective monitoring and enforcement of market discipline by the Financial Intelligence Unit.
It says the review and enhancement by the government of its procurement processes and practices to ensure value for money has resulted in the stability of the exchange rate and a decline in inflationary pressures.
The drop is significant amid fears the economy was returning to the hyperinflationary era when the local currency took a beating against the greenback on the parallel market.
The introduction of gold coins has stabilised the parallel market rates as it has mopped over ZWL$5.5bn excess local currency balances.
This has seen rates on the parallel market gyrating around ZWL$850 per dollar on the parallel market as dealers have run out of local currency.
The central bank says 6800 gold coins have been sold. Of that, 75% was bought by corporates and the remainder by individuals. This means that corporates and individuals see the gold coins as a store of value and they can no longer go on the parallel market.
The MPC is now bullish about the outlook and expects the official and parallel market foreign exchange rates to converge in the outlook period, thereby fostering price stability and anchoring inflation and exchange rate expectations on the back of a tight monetary policy stance pursued by the central bank.
Rising inflation is bad for any economy as it puts pressure on disposable incomes. For Zimbabwe, rising inflation will intensify calls for redollarisation at a time the government insists the local currency is here to stay and will work alongside the greenback.
Memories of the hyperinflationary era are still fresh when the shortage of basic commodities became the order of the day.
The government, which has been accused of fuelling the parallel market, has upped the tempo in its inflation fight by directing internal audit departments in ministries to review all running and future contracts as it seeks to halt the rot caused by extortionist pricing by government suppliers.
Treasury has ordered the internal audit departments to carry out a due diligence review exercise on all running and future contracts with special focus on pricing to all payment runs submitted to Treasury as at July 31 and were suspended for funding
