‘No excess cash’

CLOUDINE MATOLA

Zimbabwe will not see excess liquidity flooding the market this year, with leading economist Professor Gift Mugano projecting a tightly controlled money supply growth of just 2.5% through to December 2026, a stance he says effectively shuts the door on runaway inflation.

Professor Mugano, Executive Director of the Africa Economic Development Strategies (AEDS), said there is simply not enough money in circulation to trigger inflationary pressure.

“Between now and December 2026, we don’t expect excessive money in the market,” Professor Mugano said.

“From our projections, money supply will grow by just 2.5%, and that on its own gives us assurance that there won’t be any more inflation.”

It comes as the Reserve Bank of Zimbabwe (RBZ), continues to anchor policy on liquidity containment to stabilise prices and restore confidence in the domestic currency.

He said reserve money currently stands at around ZiG5 billion, levels he described as too low to sustain speculative pressure or parallel market distortions.

“We see central banks maintaining a firm monetary policy stance to rein in inflation. There is no liquidity to sustain sharp exchange rate movements,” he said.

Drawing from recent market behaviour during geopolitical shocks, Professor Mugano noted that temporary exchange rate spikes, such as those triggered by the Middle East conflict, quickly reversed due to lack of supporting liquidity.

“Some shops pushed rates to 45, but that was not driven by new money. It was fear. Without liquidity, such pricing is unsustainable. The market corrected back to 30,” he said.

Professor Mugano further argued that Zimbabwe’s currency structure itself limits inflation risks, with foreign currency holdings significantly outweighing local currency supply.

Total ZiG in the banking system is about half of total foreign currency holdings

This imbalance, he said, effectively caps inflation risk.

“To an extent that if the central bank wanted to buy all ZiG in circulation today, it would do so and still remain with surplus foreign currency,”Professor Mugano said.

He also dismissed concerns around Zimbabwe’s currency transition, arguing that public perception of a “new currency” is misplaced.

“There is debate about a new currency, but in reality, what happened was an upgrade of notes. There is no basis for runaway inflation fears,” he said.

On the fiscal side, Professor Mugano said Treasury has maintained spending discipline, reinforcing monetary stability. However, he flagged unresolved legacy debt as a structural weakness.

“The government is not overspending. We are maintaining a reasonable surplus position,” he said.

“The real challenge lies in non-payment of legacy obligations.”

Professor Mugano projections broadly align with the RBZ’s own stance, that tight liquidity management, supported by targeted interventions, remains key to sustaining macroeconomic stability.

Professor Mugano, however, warned against complacency.

“We have to remain cautious. We must avoid reckless increases in money supply. That is how inflation begins,” he said.