Businesses back to proper  pricing models

Malvern Nkomo Herald Reporter

Retailers have started recalibrating prices in line with the prevailing official exchange rate following its liberalisation, which forms part of broad measures to clamp down on pricing madness and restore stability in the economy.

The return to proper pricing models by registered businesses, including the country’s largest retailers OK Zimbabwe and Pick ‘n’ Pay, has seen an influx of customers back into the supermarkets and increased the use of foreign currency for purchases as arbitrage from exchange rate premiums narrow.

Price and exchange stability appears to be returning quickly to the market, as stabilisation measures announced by Treasury and the central bank start to take effect.

This comes as the gap between the parallel market rate, largely blamed for driving prices increases and creating distortions in the market, has narrowed significantly over the past few days.

Responding to the pricing madness at the weekend, President Mnangagwa said the Government would “take all measures necessary”, including painful ones if need be, to ensure price stability.

Part of the interventions saw the authorities implementing reforms around the exchange rate regime to allow market-determined pricing and wholesale of forex to banks for onward sale to clients.

The weekly auction, under a Dutch Auction System, now largely used as a price-setting mechanism, is now limited to US$5 million per session.

The Interbank, which uses the willing buyer-willing seller system, is now the major source of foreign currency.

Further, the central bank increased its bank policy rate, which determines the minimum lending for banks, from 140 percent to 150 percent.

Similarly, the bank increased the medium accommodation rate from 70 to 75 percent.

On its part, Treasury assumed responsibility to make public external payments from the central bank, to be paid from the National Budget, to avoid money supply creation by the central bank.

It also directed that retailers be allowed to retain 100 percent forex from domestic sales to encourage the banking of money by businesses.

Further, Treasury removed duties and taxes on 10 basic commodities, directed that all duties (except for luxury goods) be paid in local currency while all levies and charges by Government institutions will be collected in local currency to promote its wider use.

Following the liberalisation of the exchange rate, the wholesale auction during the first two weeks since inception, pushed the exchange rate significantly higher, while the premium with the open market rate also widened.

But what appeared to be the aftershocks of the far-reaching policy reforms seem to be dissipating and are being replaced by macroeconomic stability, as supermarkets return to orderly pricing based on the official exchange rate.

As of June 16, 2023 the official bank rate is now at $6 654,97/US$1, and with a loaf of bread selling at $7 000 to $7 200 in local currency, after the 10 percent allowable margin, and US$1 in foreign currency. retailers appear to have returned to proper pricing models.

A 2-litre bottle of cooking oil is going for $26 375 in Zimbabwe dollars, translating to about US$3,90, which is roughly within the range of expected prices in hard currency.

In addition, 500-grammes box of Cerevita cereal is going for $28 510, which is equivalent to about US$4,28 at the official rate.

Surveyed retail outlets however appear to still be lagging on some products like meat with a kilogramme of super beef was trading at $94 999, which equivalent to about US$14,27 per kg, which remains somewhat pricey given the expected price is about US$8,50

As the Zimbabwe dollar exchange rate against the US dollar plummeted relentlessly, retailers across the country hiked prices to levels well beyond the reach of many, which the Government condemned as gross unreasonable.

President Mnangagwa earlier said business was seemingly squandering Government’s goodwill, privileges and incentives to profiteer and, in some instances, illicitly transfer funds “beyond our borders for stashing”.

He warned currency manipulators to desist from their illegal activities arguing there was no way the exchange rate could be unstable given the increased inflows from record foreign currency receipts and the pervasive use of the United States dollar in local transactions.

More than US$11 billion foreign exchange earned last year is the highest ever done by this economy, the President said, and is certainly far higher than in most economies in Sub-Saharan Africa, outside South Africa, but this has not translated into a stable exchange rate.

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