Gono’s juggling act

Central bank governor Gideon Gono adjusted the diaspora and exporters’ exchange rate by 10 percent to Z$5 200 to the greenback but after two auctions the auction rate averaged Z$5 272 leaving the incentive for people in the diaspora and exporters in the dust.

According to a cable released by Wikileaks by buying US dollars at a rate higher than its selling rate, the central bank was subsidising importers by US$1.6 million on the US$16 million it auctioned every week.

Full cable:

Viewing cable 04HARARE731, Auction Rate Passes Diaspora/Exporter Rate

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This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS HARARE 000731

SIPDIS

STATE FOR AF/S

NSC FOR SENIOR AFRICA DIRECTOR JFRAZER

USDOC FOR AMANDA HILLIGAS

TREASURY FOR OREN WYCHE-SHAW

PASS USTR FLORIZELLE LISER

STATE PASS USAID FOR MARJORIE COPSON

¶E. O. 12958: N/A

TAGS: ECON EAID BTIO EINV PGOV ZI

SUBJECT: Auction Rate Passes Diaspora/Exporter Rate

¶1. Summary: The most noteworthy new policy announced in

Reserve Bank (RBZ) Governor Gideon Gono’s second policy

statement may last just one week. End Summary.

¶2. Gono offered unhappy exporters as well as recipients

of Diaspora transfers a floor price of Z$5,200:US$, a 10

percent bonus to last week’s controlled auction rate. In

the two ensuing auctions, however, the RBZ has pushed the

weighted average to Z$5,272:US$, leaving the incentive

rate in the dust. While Gono said the new rate could be

“reviewed periodically,” he has not readjusted it yet.

If he leaves it at Z$5,200:US$, the most innovative

aspect of his speech will have already faded into

oblivion.

Comment

——-

¶3. Comment: Compared to his December 18 address, Gono’s

speech was poorly-conceived. Buying U.S. dollars for a

rate 10 percent higher than its own sell-price meant the

RBZ had to cover the difference. On the US$16 million it

auctions each week, the RBZ would have subsidized

importers to the tune of US$1.6 million. As soon as the

RBZ did the math, it no doubt decided to boost the

auction rate.

¶4. How sloppy was Gono’s statement? When discussing the

$Z5,200:US$ rate, he said: “To the extent that inflation

is expected to decline, our expectations are that this

floor price will be reviewed downwards . . .” The RBZ is

projecting – optimistically – a reduced inflation rate of

200 percent by year-end, not deflation.

Sullivan

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