MarketsNews

IMF blames RBZ for exchange rates hikes on the black market

By Tendai Marufu

THE INTERNATIONAL Monetary Fund (IMF) says the Reserve Bank of Zimbabwe is responsible for the hikes in foreign currency exchange rates on the parallel market.

The details are contained in the institution’s 2019 Article (IV) report which has singled out the central bank’s market interference the major cause.

“The higher premium reflects additional restrictions placed by RBZ, specifically on trading margins for authorised foreign currency dealers, policy uncertainty, and a lack of publicly available statistics to guide market expectations,” said the report.

The remarks come at a time when the the parallel market premium is ranging between $34 to  $40 against US$1 on the black market.  

IMF expressed concerns that distortions in the foreign currency market remain significant despite Zimbabwe having enjoyed a brief period of relative stability up to around mid-2019.

The premiums have sharply risen from 3.5 when the Zim-dollar was introduced in February 2019.

The global lender also blamed parallel exchange rate depreciation on the massive expansion of reserve money.

The RBZ’s strategy of attempting to hold the exchange rates by attempting to maintain fixed premiums was also criticised by the institution.

“The very low level of international reserves and the poor track record on inflation make traditional anchors for monetary policy such as a fixed exchange rate regime or inflation targeting not viable in the near term,” said the report.

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IMF said said experience has shown that money-based stabilisations in countries with high inflation have—when consistently applied and supported by fiscal policy— quickly reduced inflation.

“Given the close correlation between money growth and inflation. To that end, targeting a moderate increase in reserve money in 2020 would help anchor movements in broad money growth, exchange rate and inflation, given their correlation with reserve money growth,” the bank suggested. – Zimbabwe Voice

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