Inflation, a true reflection of current situation, analysts

The Zimbabwe Statistics Agency (ZIMSTAT) said the country’s month – on – month and annual inflation cooled down in the month of July with food inflation accounting for the biggest drop.

Latest Zimstat data on inflation rates released last week revealed that month –on- month inflation rate was -15,3 percent shedding 89,8 percentage points on the June 2023 rate of 74,5 percent.

Year-on-year inflation rate as measured by the all items Consumer Price Index (CPI) was 101,3 percent down from 175,7 percent recorded in the previous month.

This is the first month that the monthly inflation rate has fallen after the new monetary and fiscal measures and Treasury projects it to close December below the 3 percent mark.

Economist, Enoch Rukarwa, said the rate has been sliding for the whole of July and part of June both in the formal and the alternative market.

He said; “However, ZWL prices in formal retailers have remained sticky upwards or have rerated at a slower pace than developments in the exchange rate market.

“We applaud the Government on prudential fiscal policy measures and contractionary stance limiting aggregate ZWL liquidity in the economy.

“It is our hope and prayer that the relative stability especially around inflationary pressures and adverse exchange rate volatility be sustainable for the long overhaul.”

Reserve Bank of Zimbabwe (RBZ) governor, Dr John Mangudya, in June said the bank shall sell foreign currency at the market-determined exchange rate through banks, in an effort to ensure the inter-bank foreign currency market is the primary source of forex in the economy.

Economist, Tinevimbo Shava said; “The review and enhancement by Government of its procurement processes and practices to ensure value for money have resulted in the stability of the exchange rate and a decline in inflationary pressures, so this is not a surprise.”

According to another economist, Namatai Maeresera; “The country has been on a monetary policy tightening stance and these are the benefits of such activities, high interest rates and government payment stance have led us to this point and all should be commended.”

Conversations and arguments have been brought up regarding the level of lending rates currently in the market as Treasury reaffirmed that the prevailing rates will pass through into the next year.

The RBZ has raised its policy interest rate from 140 percent to 150 percent per annum in an effort to tame inflation, bank governor Dr Mangudya said.

The bank also increased the medium-term bank accommodation interest rate from 70 percent to 75 percent per annum.

Bankers and industry have been calling for interest rate cuts, but economists have said, the industrialists were now used to cheap money which was also part of the problem the economy was facing.

Large businesses have called for a cut on rates, but Minister of Finance and Economic Development, Prof Mthuli Ncube, said these will remain until annual inflation slows down to acceptable levels.

In support of the monetary policy stance, Mthuli is on record that; “I think once we see that downtrend in month-on-month inflation being sustainable, maybe over a three- to four-month period, then we can begin to think about lowering interest rates. But for now, the tough monetary-regime stance and the tough fiscal stance also stands. That’s what it takes to bring stability and bring things under control.”

Economist, Dr Prosper Chitambara, said the interest rates are at the right level and Treasury is correct to say we need sustained period of stability until we think of a rate cut. He, however, he acknowledges that it will come with its consequences such as failure to meet growth targets.

Dr Chitambara accepts that higher rates may push up non-performing loans (NPLs), but he insists, “it is also imperative to strike a balance and determine an optimum interest rate policy that complements the policy measures that have been put in place.”

Economist, Prof Tony Hawkins, argued that the interest rates were at optimal levels and Treasury is holding the correct line.

He argues that lowering interest rates will see the parallel market running away again and more money searching value

“In the end, this will perpetuate financial disintermediation and probable market bubbles on the stock market, as customers will look for alterative, non-bank based, investment options,” Prof Hawkins said.-ebusinessweekly