Inflation and currency developments update for October

Price and Currency Stability, CZI calls for utmost discipline

Economic agents in the country should act with utmost discipline to maintain the obtaining delicate stability in the exchange rate and prices, according to CZI’s October Inflation and Currency Developments update to members.

The update notes that while considerable progress has been made, the market is particularly susceptible to fiscal and monetary shocks such as a large dose of government expenditure in a short space of time.

In the future, CZI says the sustainability of the Currency Auction depends on the balance between the demand and supply of foreign exchange.

“If the supply of foreign exchange is guaranteed, the auction exchange rate will remain stable and become a predictable reference rate for prices in the economy,” reads part of the macro-economic briefing.

The BMO said Government should continue to implement what they promised to do – exercise fiscal restraint by non-recourse to RBZ Financing and Non expenditure outside the Budget if the rate is to remain stable.

It added that Fiscal Authorities should take seriously the need to increase the demand for local currency by gradually phasing
out payment of duties and taxes in foreign currency, and accept its local currency equivalent, so as to lead in demonstrating total confidence in the domestic currency.

“This would also reduce unnecessary demand for foreign currency in the economy, as currently some individuals and companies resort to the parallel market to get foreign currency to meet their obligations to Government.”

In conclusion, CZI said the currency auction needs the support of all economic agents as incipient inflation pressures are mainly dependent on the developments on the foreign exchange market.

“A single misstep in the form of a large liquidity injection into the market can send the exchange rate tumbling and destroy the progress that we have made so far.”

Find attached the full update