Reserve Bank of Zimbabwe (RBZ) Governor Gideon Gono on Tuesday forecast the country’s inflation to hit 800% in March, but said the key rate would drop to 230% by year-end.
In his monetary policy review statement for the last quarter of 2005, Gono said inflationary pressures are expected to remain high in the crisis-hit Southern African nation, peaking in about two months’ time before going on a downward spiral around midyear.
Inflation, labelled Zimbabwe’s number-one enemy by President Robert Mugabe, at the moment stands at 585,8%, one of the highest such rates in the world.
Gono said: “Inflationary pressures are expected to remain high during the first quarter of the year with the pick expected to come in March 2006. We expect an inflation pick of between 700% and 800%. June inflation is expected to decline to below 500% before coming down to close the year 2006 at the revised rate of between 200% and 230%.”
The RBZ governor said the major inflation drivers over the past 12 months were high monetary supply growth, growth in budget expenditure, foreign-currency shortages and price distortions, especially in fuel pricing.
But Gono, who was tasked by Mugabe to lead efforts to revive Zimbabwe’s crumbling economy, said the country’s economic problems are also because of widespread corruption at all levels of society, which he said is crippling all efforts to resuscitate the economy.
He said: “Talk of gold and other precious minerals, there is corruption; talk of fuel distribution, there is corruption; talk of agricultural inputs, talk of distribution of national funds, there is corruption; talk of export and import invoicing, there is corruption.
“If we do not stamp out this growing cancer, especially among people in positions of authority and influence … if we do not stamp out the indiscipline as we go about our business, we will soon discover too late, though, that policy formulation and implementation, monitoring and decisions will be based on self-interests, racial overtones, regional and tribal considerations at the expense of national interests.”
Zimbabwe’s severe economic crisis has created conditions for corruption and black-market trading to flourish. Mugabe in 2004 launched a campaign to root out graft, but critics said the anti-corruption campaign was an attempt to divert attention from the country’s deepening economic crisis as it left out officials from his ruling Zanu-PF party.
Gono said the RBZ will in the period ahead tighten money supply to reduce money supply growth and called on the government and line ministries to adhere strictly to budget. But he also announced plans to introduce a new and high-denomination bearer cheque of Z$50 000 at the beginning of next month.
Bearer cheques, introduced at the height of money shortages in Zimbabwe three years ago, function as normal currency although they are not real money, and the RBZ has always promised to phase them out at some point. The highest-value bearer-cheque denomination currently is Z$20 000.
Gono, who has substantially liberalised the exchange rate since taking over in 2003, appears to be moving to control the interbank market for foreign currency partially by controlling percentage movements in the exchange rate.
He said the exchange-rate adjustments will be triggered at varying allowable margins based on actual volume traded in the market on a particular day.
Gono also raised with immediate effect the amount that locals can take out of the country to Z$5-million from Z$300 000. — ZimOnline