THE Zimbabwe dollar tumbled by nearly 26% on the official market on Tuesday, the biggest collapse in one day since the auction system was introduced three years ago, while a government inquiry accused the State of driving the collapse of the local currency.
The Zimdollar now officially trades at 1 888 to the US dollar from 1 404 a week ago, according to the results of the weekly foreign-exchange auction run by the central bank, a drop of 25,5%.
It has depreciated by 34% since the beginning of the month.
On the widely used parallel market, it was trading at $3 500 to the greenback yesterday.
The currency’s collapse has led to calls by opposition figures to pay salaries exclusively in US dollars, saying that the local unit is no longer holding value.
A joint study by the Competition and Tariff Commission and National Competitiveness Commission to investigate the cost drivers to the recent price hikes showed that government was driving money supply and urged it to relax exchange rate controls.
The report urged government to “liberalise the exchange rate to allow market forces to determine prices and attain efficiency.”
“This measure is unlikely to lead to increases in prices as manufacturers’ prices are pegged in the US dollar and indexed to the parallel market rate,” the report said.
Zimbabwe has been battling a wave of price hikes on basic goods and services.
The report noted that the exchange rate was the biggest cause of the price hikes, and that manufacturers were preferring US dollar to the Zimdollar.
The study used primary and secondary information and data gathered from various sources which include Confederation of Zimbabwe Industries manufacturing sector survey (2022), Trade Map, and interviews with industry players.
According to the study, in March and April the Zimdollar depreciated by 4% and 12%, respectively on the official market, but in May it had depreciated by 34% as at time of publication, on Tuesday.
The commissions warned government against making large payments to contractors to avoid surges in local currency liquidity.
“The study finds that price increases have been witnessed in local currency terms while they have remained stable in US dollar in the informal market,” the report read.
“The price increases were huge in May when the local currency depreciated by 34% indicating that the price increases were exchange rate-induced.
“Persistent depreciation of the exchange rate induced a shock in the rate of inflation as firms index prices in US dollar.
“US dollar denominated cost drivers were relatively stable as compared to those charged in the local currency, suggesting a positive relationship between the depreciating exchange rate and increases in local currency denominated cost drivers.”
The report by the commissions show that the Zimbabwe dollar depreciated by 109,22% from US$1:671,45 at the official exchange rate in December 2022, to US$1:$1 404,80 as of May 16, 2023.
On the parallel market the Zimbabwe dollar depreciated by 222,58% from US$1:$930 to about US$1:$3 000 as of 16 May 2023.
“Prices in Zimbabwe tend to be adjusted in line with the movement of the exchange rate, as businesses follow a cost recovery model, the report said.
“The official rate tends to move upwards on a weekly basis on the auction market, thereby impacting on inflation developments.
“The month-on-month inflation rate, thus moved from -1,6% in February 2023 to 2,4% in April 2023.”
Opposition Citizens Coalition for Change (CCC) leader Nelson Chamisa said the country’s economic crisis could be fixed with ease and urged that workers be paid in US dollars.
“Bad politics can’t deliver good economics.
“The state of the economy is the state of leadership. Prices in the shops are wild,” he wrote on Twitter.
“Salaries are completely washed away. Just pay workers a decent wage in US dollars.”
Former Finance minister and opposition CCC vice-president Tendai Biti told NewsDay that dollarisation was the only way out for the country.
Source: Bulawayo24
In other news-Graffiti painting UZ students fail to show up in court
Four University of Zimbabwe (UZ) students who were arrested last week charged with malicious damage to property shall stay longer behind bars after the investigating officer (IO) who is key to their bail bid failed to show up in court Wednesday.
They are Emmanuel Sitima, 24, Comfort Mpofu, 22, Tawanda Watadza, 24 and Lionel Wadamombe.
Harare magistrate Learnmore Mapiye was forced to postpone hearing to Friday after prosecutors said the investigating officer was also testifying in another court during the same time he was required in the student’s court case. Learn more
