THE Reserve Bank of Zimbabwe has downplayed any prospects of inflation rising as government spending surges ahead of the 2023 general elections and the onset of the summer cropping season.
Zimbabwe’s inflation has over the past few months been trending downwards on account of tight monetary policy and interventionist fiscal measures.
Official figures show that the year-on-year inflation rate for October 2022 decreased to 268.8% from 280.4% in September 2022, shedding 11.6 percentage points while the month-on-month inflation rate in October 2022 was 3.2%, shedding 0.3 percentage points on the September 2022 rate of 3.5%.
In the month of September 2022, Zimbabwe’s annual inflation was 15 times higher than Angola, the country with the second-highest inflation in the Southern African Development Community.
Industry leaders are however cautious that this trend may not be maintained if the government’s money supply growth increases before the 2023 general elections.
John Mangudya (pictured), the country’s central bank chief, told The NewsHawks that policy coherence between fiscal and monetary authorities would stabilise Zimbabwe’s floundering economy.
“Let not their hearts be troubled because right now there is coherence and well-coordinated approach between the government and the Reserve Bank of Zimbabwe,” Mangudya said.
“Those are two different entities; the Reserve Bank has the purview over the monetary policy of the country and government through the ministry of Finance have the fiscal policy purview of this country and therefore people who are afraid of fear factors — their hearts should not be troubled because right now there is a well-coordinated approach, which means the government will not unnecessarily put in too much money into the economy because of this funding season. The role of banks is to provide funding to the economy for farmers or industry themselves. So when they go to the market this won’t cause inflation.
“Our job is to provide advice to government on financial matters as enshrined in the RBZ Act. We continuously advise and our advice has so far been taken, that is why we’re so bullish that it is well coordinated. The minister of Finance knows exactly that if he puts too much money into the economy — whether he is going to buy wheat or soya bean from the money that is in his account. Because of coordination that is there, we do believe that the people’s concerns which are genuine are being addressed by the ministry of Finance. ”
The Confederation of Zimbabwe Industries (CZI) in its latest research note warned the government against excessive money supply growth.
Experts say the taming of inflation as well as the maintenence of stability over the past two months have generally shown that the greatest threat to stability is excess liquidity.
“The responsiveness of the parallel market to tightening of liquidity also shows that the parallel market behaviour is largely responsive to liquidity conditions in the economy, as reflected by the growth in money supply,” the CZI warns.
“This means that the threat to stability is the liquidity pressures that would be expected going forward. The upcoming agriculture season, for example, will require government to support farmers through the various schemes in existence. There is potential for the creation of excess liquidity which can feed the growth on money supply if payments are not carefully calibrated. The ability to crowd in the private sector as well as general ability to fund agriculture in a non-inflationary manner will determine the inflation trajectory in the coming months. The upcoming 2023 harmonised elections also have the potential to be a source of money supply growth unless elections are funded from the budget and payments are also carefully calibrated so as not to upset the market.”