Featured - Finance - February 23, 2021

Foreign currency auction system to anchor inflation

 

The 2021 Monetary Policy Statement (MPS) which was formulated by the Reserve Bank of Zimbabwe (RBZ) maintains that the foreign currency auction system is an accommodative measure that is set to keep the economy afloat.

The MPS upholds that the foreign currency auction system remains paramount in anchoring inflation and maintain price and financial system.

The bank is optimistic that it will break the current three figure inflation which is ranging around 350% to 10 % by December 2021.

Presenting the MPS, RBZ Governor John Mangudya said the Bank shall continue refining the foreign currency auction system taking into account market fundamentals as well as closely monitoring the utilization of funds from foreign currency auction system and the economy at large.

“Accordingly the Bank’s Exchange Control Inspectorate and the Financial Intelligent Unity have enhanced their monitoring and surveillance on the utilization of the foreign exchange in the market to foster market discipline,” said Mangudya.

In an interview with BusinessMail, Vince Musewe who is an independent economic consultant and analyst argues that inflation is not only driven by the foreign exchange rate but by general level of confidence which is built through consistent policy clear leadership, direction and political stability.

“These still need attention and we will continue to see pressures on prices due to short term thinking and fear of unquantifiable political developments as we move towards vision 2023.

“Inflationary pressures are therefore likely to continue despite a stable foreign currency auction system. 10% targeted inflation is a wish subject to complex emerging exogenous and internal matters,” said Musewe.

The Bank is set to ensure that the foreign currency auction system participants comply with the auction rules and regulations to curb abuse of the System and safeguard the auction from being exploited as a breeding ground for arbitrage opportunities.

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