Zimbabwe earned $2.4 billion in foreign exchange earnings in the first quarter of 2022, up 15.9% from the same period last year, the Reserve Bank of Zimbabwe (RBZ) revealed to the following a meeting of its Monetary Policy Committee (MPC).
According to the RBZ, the positive trend in foreign exchange generation comes at a time when foreign payments stood at US$1.8 billion, which translates into a favorable current account balance.
Given this positive outcome, the MPC noted with satisfaction that economic fundamentals remained strong to support a stable exchange rate, as evidenced by “a favorable current account balance, positive real sector growth, public works undertaken by the government, fiscal sustainability and tight monetary policy.
However, the increase in foreign exchange earnings comes at a time when non-monetary factors have continued to weaken the exchange rate.
Normally, an increase in foreign exchange earnings should lead to exchange rate stability, but this stability has remained elusive judging by the depreciation of the local currency in official and parallel markets.
Officially, the Zimbabwe dollar is trading at $159 per US dollar after starting the year at $108 per greenback.
Such a depreciating trend is normally associated with foreign exchange shortages, but this has not been the case in Zimbabwe as the foreign exchange generated in the economy has continued to soar.
Dr Mangudya said the existence of strong economic fundamentals suggests that the recent exchange rate shocks are a manifestation of negative sentiments or perceptions attributable to people’s past experiences with hyperinflation and the inevitable losses incurred during currency reforms. .
“The (MPC) Committee further noted that the erosion of people’s savings due to inflation is forcing them to try to avoid similar losses by holding the US dollar as a store of value.”
Meanwhile, the MPC noted with concern the recent rise in inflation month-on-month, from 7.7% in March to 15.5% in April 2022, and the increase in inflation annual from 72.7% in March to 96.4% in April 2022.
However, they noted that the high levels of inflation are the result of geopolitical tensions that the country could not control.
The rise in inflation is the result of a combination of global shocks and the pass-through effects of the recent exchange rate depreciation in the parallel market, with a large part of the inflationary pressures emanating from the impact of the ongoing conflict between Russia and Ukraine.
The MPC, however, expects the government to come up with measures to bolster confidence in the economy.
The measures are also expected to address market indiscipline and increase demand for local currency.
These will be in addition to the current tight monetary policy stance aimed at restoring confidence in the economy, taming market indiscipline, stabilizing inflation and exchange rates and creating an enabling environment. to support the projected economic growth rate of 5.5% in 2022.
In line with these measures, the RBZ kept the main interest rate at 80%, still citing imported inflation that is causing exchange rate volatility.
The interest rate on the Bank’s medium-term credit facility was maintained at 50% per annum.
In the same spirit, the quarterly base money growth target was maintained at 5% for the quarter ending in June 2022.