Why Zimbabwe’s inflation continues to soar

The Reserve Bank of Zimbabwe, which put the printing press into overdrive just over a decade ago and whose hundred trillion Zimbabwe dollar notes marked the zenith of hyperinflation, says it will not recklessly print money.

But the bank’s governor, John Mangudya, acknowledged at a meeting with business leaders last week that there is lack of confidence. “I don’t know why,” he added to much laughter from the audience.

Mangudya need not look far for a reason. The way authorities introduced some of the reforms added to public distrust. The government abruptly outlawed the use of foreign currencies on June 24, saying all domestic transactions would now be in the interim RTGS currency, which was renamed the Zimbabwe dollar.

The decision, first circulated on social media, caught the market by surprise. Ncube and Mnangagwa had a week before repeated a pledge to only introduce a domestic currency at the end of the year.

On Tuesday, less than a month after ending dollarisation, the government made another U-turn, announcing that hotels in the resort town of Victoria Falls could charge guests and pay electricity bills in dollars.

“This shows that the decision to end the use of multi currencies was rushed,” said Harare-based economist John Robertson. “Re-dollarising parts of the economy does not bode well for confidence in government policy, especially as we try to attract foreign investors.”

Van der Linde argued that official inflation figures may only now be catching up with the reality that ordinary Zimbabweans have struggled with for some time.

With so much economic activity happening in the informal sector, prices are being set based on the higher exchange rate that US dollars fetch on the black market, making goods and services prohibitively expensive for people paid in the local currency.

“The authorities must somehow find a feasible solution for the currency issue,” Van der Linde said. “That would restore confidence.”- BusinessDayLive

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