Overall annual inflation in Zimbabwe declined in April to 505% year-on-year (y/y) from 583,7% y/y in March, with all sub-categories of the inflation index registering a decrease, Standard Bank noted in a research brief.
“Clearly, the administrative measures introduced over the past six months have been instrumental in lowering inflation. However, viewed over a longer term the inflation outlook is not positive,” Standard Bank economist and author of the brief Robert Bunyi says.
The productive sector lending facility is injecting considerable inflationary pressure into the country’s economy.
“We expect annual inflation rates will continue to decline but will later revert to a rising trend,” Bunyi said.
He noted the Reserve Bank of Zimbabwe (RBZ) in late April reduced the overnight rate from 400% to 205%, indicating to the market where it would like interest rates to be.
“Following this the bank stated that compound effective interest rates should be in line with inflation levels. In response to these signals, commercial banks progressively began revising lending rates downward.
Frequent changes to interest rate policy have increased the level of uncertainty in the money markets,” Bunyi says.
He reports that this is expected to result in rapid and large changes in money market liquidity, while over the short-term interbank interest rates are expected to remain highly volatile.
Following the RBZ’s decision to allow the Zimbabwe dollar to depreciate on the auction market the currency depreciated by 15,3% during April. From its inception in January to early May, the auction market has allotted a total of $232-million from below $80-million received in the RBZ pool during the comparable period in 2003.
“Black market activity has declined significantly due to tightened controls by the authorities. The Reserve Bank may have to incorporate a programme of periodic devaluation of the Zimbabwe dollar as part of the process of injecting some stability into the markets,” said Bunyi. – I-Net Bridge