The Reserve Bank of Zimbabwe (RBZ) mid-term Monetary Policy Statement (MPS) has projected annual inflation to decline to 60% by year-end and the monthly inflation is expected to moderate during the second half of the year to levels of less than 3% on the back of a commitment to further strengthen the current state of economic crisis.
The aggressive policy intervention measures adopted by the government and banks to address the temporary pricing and exchange rate volatility have made significant progress in putting an end to the instabilities, bringing about much-needed normalcy in the price and exchange rate dynamics, and bringing calm to the domestic markets. As evidenced by the country's continuing positive balance of payments, modest growth in the money supply, and a stable banking sector, the macroeconomic fundamentals have remained strong to support and sustain the current price and exchange rate stability.
The continued involvement in the foreign currency market through the wholesale auction mechanism is having the dual effects of clearing out excess liquidity and re-establishing the ideal ratio of the two currencies, maintaining the existing exchange rate and price stability. As a result, the steep increase in month-on-month inflation from 15.7% in May to 74.5% in June 2023, significantly reversed in July 2023 to minus 15.3%. Similarly, the annual inflation which had risen from 86.5% in May 2023 to 175.8% in June 2023, fell to 101.3% in July 2023.
However, even though the aforementioned good effects exist, negative effects have also become pronounced. Currently, there has been an upward review of Zimbabwean dollar tax-free thresholds from ZWL$ 91 666 to ZWL$ 500 000 as a way to boost spending and cushion against macroeconomic shocks. Also, according to the Consumer Council of Zimbabwe (CCZ), a family of six now requires $2,6 million a month to survive, up from $2,5 million in June, spelling disaster for thousands of families countries-wide. This is due to prices of commodities continuing to race against the parallel market rates and this is because our inflation rates are still high, also prices of commodities shot up by 24,5% in United States dollar (US$) terms. The cost of health services has also jumped to 135% in local currency. The prices of utilities are also increasing drastically as to cushion themselves against inflation. Due to the unavailability of the local currency in the market, ZERA recently raised fuel prices in US dollars and reduced them in Zimbabwean dollars.
The Zimbabwean dollar suffered a slight retreat again, following the Reserve Bank of Zimbabwe auction on Tuesday the 8th of August. The US dollar was being traded at a rate of ZWL$ 4,559.7414 compared to ZWL$ 4,542.3710 on 1 August 2023. There seems to be no change in the parallel market rates from what it was the previous week.
