THE economy is set to benefit from rising gold export earnings and higher reserve accumulation following the current drop in value of the United States dollar against major currencies, Reserve Bank of Zimbabwe Governor Dr John Mushayavanhu has said.
He said while the central bank will continue to monitor international financial markets for any emerging pressures, Zimbabwe needs to buttress the opportunity and promote production in the mining sector where gold prices are firming as the dollar depreciates, increasing benefits of macro-economic stability.
The US dollar last Tuesday lost its value by 1,3 percent against a basket of currencies, its lowest in four years, despite US President Donald Trump’s comments that the currency was “doing great”.
Dr Mushayavanhu said the weakening of the US dollar was driven by some investor-risk-off behaviour, partly reflecting policy uncertainty on US monetary policy independence, heightened trade protectionism and spillovers from mounting geopolitical tensions.
“First, the weakening US dollar will result in the price of gold firming as investors continue to push the demand for gold up to hedge away from the US dollar. For Zimbabwe, this will mean higher export earnings from gold as well as higher gold reserve accumulation and increased macroeconomic stability.
“As such, the net effect from the weaker US dollar on the Zimbabwean economy is more likely to be positive. The country, however, needs to buttress the opportunity and promote production, especially in the mining sector,” Dr Mushayavanhu said.
The central bank chief, however, warned on the downside of the slipping US dollar on Zimbabwe’s production capacity and the impact on the price of commodities indexed in that currency.
The depreciation of the US dollar, he warned, will likely impact domestic prices as the cost of imported raw materials and finished goods rises.
“This implies that most traded commodities, which are priced in US dollar will become expensive.
The increases will result in higher domestic cost of production, which together with the appreciation of the domestic real exchange rate may cause cost-push inflation pressures and weaken the country’s competitiveness.
“These potential higher costs will likely be integrated into the cost of production of goods sold locally.”
The RBZ will, however, closely monitor trends in international markets to ensure that any emerging exchange rate and inflationary pressures are well managed in a way that ensures the sustenance of current macro stability, he said.
Currently, gold is trading at record highs, recently surging past US$5 500 per ounce, driven by a weakening US dollar, intensified geopolitical tensions in the Middle East and strong investor demand for safe-haven assets.
The bullish trend is supported by consistent, higher highs and a +73.70 percent one-year gain.-herald
