Waiting for Godot

The Reserve Bank of Zimbabwe (RBZ) illustrated this week that it has resigned to its fate as rates on the parallel market run riot.

After the routing of the local currency on the parallel market over the past weeks, the market expected the central bank to announce a raft of measures to halt the slide and stabilise the local currency.

Instead, the bank’s Monetary Policy Committee (MPC) maintained the existing measures which have failed to tame the parallel market and is waiting for Godot: the government’s intervention.

How and when the government will intervene, no one knows.

In a statement,  RBZ governor John Mangudya said: “The committee, therefore, welcomed the decision by Government to come up with measures to enhance confidence in the economy, deal with market indiscipline and increase the demand for the local currency, which measures will go a long way in buttressing the current tight monetary policy stance, restoring confidence in the economy, taming market indiscipline, stabilising inflation and exchange rates and creating a conducive environment to support the envisaged economic growth rate of 5.5% in 2022.”

From the statement, the bank’s MPC feels it has done its part and is now waiting for others.

The Reserve Bank of Zimbabwe blamed the Russia-Ukraine war for fuelling annual inflation which reached 96.4% in April from 72.7% in March.

It also attributes it to the recent exchange rate depreciation on the parallel market.

For starters, the war in Ukraine is not only affecting Zimbabwe. The ripple effects are being felt in the four corners of the globe.

Recently, Poland and Bulgaria were switched off gas as Russia pushes unfriendly countries to pay for supplies in roubles.

The duo is working round the clock to find alternatives.

The central bank says the fundamentals are in place and the parallel market is being driven by perception.

The parallel market is driven by the high demand for foreign currency as the foreign currency auction has struggle to allot resulting in a backlog of US$350m.

The auction system has also created rent-seeking behaviour as the gap between the official and parallel market is widening.

If the auction prices the dollar at ZWL$169 and somewhere the same dollar is fetching above ZWL$380, there is a problem and no amount of sugar coating such as the fundamentals are right will convince sceptics. Whose interests is the auction serving if the intended beneficiaries are not accessing the forex?

In addition, people have lost confidence in the local currency despite claims to the contrary by authorities that continue burying its head in the sand.

The loss of confidence comes despite the government plunging headlong with the de-dollarisation plan.

Zanu PF spokesperson Chris Mutsvangwa this week said it was weird that the local currency was week at a time exports have doubled.

“It’s a financial and economic anomaly that we are earning US dollars, yet we can’t find them in our purse. The more you put money in your purse, the more your purse gets empty of US dollars, something is wrong,” he said.

We are wary the situation will worsen as monetary authorities continue sleepwalking hoping the government will intervene.