‘ZiG powerless to fight cost-push inflation’

Source: ‘ZiG powerless to fight cost-push inflation’ -Newsday Zimbabwe

The new measures introduced by the Reserve Bank of Zimbabwe (RBZ) headlined by the introduction of a structured currency are inadequate to curb cost-push inflation, FBC Securities say.

In April, RBZ governor John Mushayavanhu introduced a new currency, Zimbabwe Gold (ZiG), which is backed by gold and forex as part of measures to stabilise the economy.

However, in its May 2024 Monthly Stockpick Report, FBC Securities said these policies seem inadequate.

It noted that the measures have noticeably brought some stability to demand-driven inflation and on the foreign currency market.

“Going into the second half of 2024, we expect the monetary sector to remain relatively stable, due to the tight demand-management policies currently being maintained.”

 “However, the policies appear to be inadequate in curbing cost-push inflation driven by costs related to supply-chain disruptions, increase in indirect taxes, high cost of financing and increase in cost of imported raw materials, among others.”

 

According to FBC Securities, the contractionary demand-management policies such as increasing taxes and interest rates are driving up the cost of doing business, hence cost-push inflation.

“We expect authorities to implement policies that help businesses to minimise production costs and improve capacity utilisation,” FBC Securities said.

“The economy has registered some stability following the announcement of the 2024 Monetary Policy Statement which introduced a new structured currency and extended the multi-currency system to 2030. The policy managed to stabilise inflation and exchange rates.”

However, FBC Securities added that the continuation of a tight monetary policy is limiting the availability of local currency and suppressing activity of the capital markets.

It was revealed at the inaugural two-day Capital Markets Conference that the central bank had disbursed ZiG46 million in notes and coins to the banks, with these financial institutions only releasing 30% into the market.

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