Exchange rate stability key for pricing – Mthuli Ncube

Finance and Economic Development Minister, Professor Mthuli Ncube admitted on Friday it was not easy for players in the economy to stop linking prices to the United States dollar after the country de-dollarised mid this year.

He said exchange rate stability, especially against the United States
Dollar, was key to addressing the challenge.

With government having banned use of multi-currencies in the country in
June after 10 years, and re-introduced the Zimbabwe dollar as the sole
trading currency on the domestic market, local businesses still link most
prices to the greenback.

Fuel, medical drugs, bread and rentals are among key necessities that
Zimbabweans are battling with whose prices continue to be unrealistically linked to the United States dollar.

The practise is a costly disadvantage to locals earning Zimbabwe dollars
as the salaries are not indexed to the US dollar.

As a result, government has run into serious problems with its employees, who are demanding that their salaries be linked to the official exchange rate to cushion them against the rising cost of living as the local currency continues to depreciate against the greenback.

Addressing a post 2020 national budget meeting, Prof Ncube said very
few economies had successfully managed to de-dollarise, vowing that
Zimbabwe will be an exception.

“We are in a transition but the trick to de-link (pricing from the US
dollar) is exchange rate stability,” Prof Ncube said.

“If we can keep the exchange rate stable for six months to a year, it
can help us de-link.”

The exchange rate between the Zimbabwe dollar and major international
currencies has been volatile since the pegged 1-1 exchange rate to the
greenback was abandoned at the beginning of the year.

This has been in spite of attempts by the central bank to incrementally
drip-feed a currency inter-bank market to tamper off pressures on the
domestic currency.

The inter-bank market was established in February by the central bank as
part of currency reforms under which the Zimbabwe dollar was re-introduced
as a mono-currency, and its fixed exchange rate lifted, among other things.

Having started at an exchange rate of US$1: Z$2.5, the local unit has in the past nine months depreciated to trade at Z$16 to the greenback on the official market and at around Z$21 to US$1 on the parallel market.

Prof. Ncube said the inter-bank market was still undergoing changes.

“The market is still in its infancy, it was introduced in February (this year) and we have had some fine tuning to do and there is still more fine tuning to do,” he said.

The biggest challenge for government has so far been that local businesses use the parallel market rate when pegging prices for goods and services even when some would have accessed foreign currency to buy the goods at the official rate.
New Ziana

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