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Tapiwanashe Mangwiro Senior Business Reporter

The Reserve Bank of Zimbabwe (RBZ)’s monetary policy committee (MPC) says measures instituted by the central bank have had a positive impact on the economy after monthly inflation started to decline while open market exchange rates have stabilised.

Governor Dr John Mangudya said in a statement after the bank’s latest MPC meeting that monthly inflation was expected to decline progressively, although the annual rate might creep up until September due to the effect of a low base. He also said official and parallel market exchange rates were expected to converge on account of the now stable economic environment, which has also benefited from fiscal policy measures implemented by the Treasury.

“The MPC noted with satisfaction that a combination of the tight monetary policy stance, favourable uptake of gold coins, effective monitoring and enforcement of market discipline by the Financial Intelligence Unit (FIU).

“Also the review and enhancement by the Government of its procurement processes and practices to ensure value for money had resulted in the stability of the exchange rate and a decline in inflationary pressures.”

The RBZ introduced the Mosi-oa-Tunya gold coins into the market in July this year as a store of value alternative amid rising inflation and the rapid depreciation of the local currency. The coins entered the market at US$1 823,83 a piece.

The price was viewed as prohibitive to the generality of the public but a successful launch and the huge market demand, prompted the bank to take a decision to mint smaller denominations, which are expected on the market soon.

“Following the successful launch of the gold coins on July 25, 2022 and in response to public demand, the bank shall introduce and release into the market gold coins in units of a tenth ounce, quarter ounce and half an ounce for sale with effect from mid-November 2022,” Dr Mangudya said earlier this month.

The central bank chief said a total of 10 000 gold coins had been minted and out of which 8 076 gold coins had been disbursed into the banking system and to agents for sale.

“A total of 6 799 gold coins had been sold as at August 26, 2022, with 75 percent having been bought by corporates and 25 percent by individuals, 95 percent of the gold coins sold were purchased in local currency and the balance in foreign currency,” Dr Mangudya said.

During the launch of the gold coins Dr Mangudya said, “The coins are an investment option, in order to preserve value for those with extra balances that have been used to chase excess liquidity in the market. This will put less pressure on the US dollar and stabilise the exchange rate.”

According to the governor, such benefits would filter down to the ordinary person as it meant prices in the economy would stabilise at a stable rate. “If the price stabilises it will also benefit those that are currently chasing foreign currency for value preservation,” he said.

Economist Prof Tony Hawkins, when the coins were released, predicted that they would be bought by companies that want to lock in value, traders in the market and some few individuals with excess liquidity. 

“The coins might really work in the bank’s favour because since one can trade it within the 180 days before it is eligible to be sold back to the RBZ, it is then liquid and that makes it attractive and will mop up excess balances,” he said.

This has yielded the desired effect given the decline in monthly inflation from 25,6 percent in July 2022 to 12,4 percent in August 2022 and the parallel market exchange rate, which retreated from 950 per dollar to between 800-850 per dollar on the parallel market.

“As previously advised, it was expected that the month-on-month inflation would progressively decline, while annual inflation was expected to continue rising to reach an annual peak in September 2022 due to the lower base effect in 2021,” Dr Mangudya said.

Dr Mangudya said the MPC expected the parallel market rate, the interbank rate and the auction rate to converge in the near term, thereby fostering price stability and anchoring inflation and exchange rate expectations. In order to maintain such a positive trajectory, the bank resolved to keep interest rates unchanged with the Bank policy rate at 200 percent per annum and the Medium Term Accommodation interest rate at 100 percent per annum.