Business - Featured - October 19, 2020

RBZ auction stabilises exchange rates, not basic commodities prices: Professor Mugano

THE Reserve Bank of Zimbabwe (RBZ), recently introduced auction system has yields positive results as it stabilises the rates but not basic commodities prices.

Black market exchange rates were the major players of inflation since there was the encouragement of illicit deals.

With the auction system importers have been accessing foreign currency through the authorized route of the RBZ.

The market- auction system came to effect on 23 June 2020 since its introduction the rates have become static.

According to the auction results this week the foreign currency allocation increased to US$29,2 million up from US$26,2 million last week.

On Tuesday auction, the highest bidder on the main auction offered $88,07 (slightly higher from last week’s $87), while the lowest accepted bid was $79.

Economist Professor Gift Mugano told Business Mail that the exchange rate has stabilized the foreign exchange rate but not the prices of basic commodities as they are other drivers of inflation.

“People are mistaken that if the exchange rate stabilizes the prices will stabilize, the cost profile of any commodities is not driven by the exchange rate but they are other cost drivers,” Professor Mugano said.

“Yes, the exchange has a constancy significance because when it comes to the importation of raw materials as they need foreign currency.

“Wages have been eroded by inflation and the majority of people are earning below the datum poverty line and also they are serious incapacitation among companies.”

“We have just learned that the government is increasing salaries by 4 times and that the minimum wage is now about ZWL12 000 so they are not the exchange rate. This is an extension of a cost driver that will drive inflation that is when people say civil servants have money,” Professor Mugano said.

“Inflation expectation is driven by an adjustment in salary even if the rate is stabilizing what must be done is to stabilize all the factors,” He said.

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