THE country’s two-tier interest rate policy needs to be complemented by other supportive measures particularly those that increase exports and generate more foreign exchange, says the Reserve Ba
nk of Zimbabwe (RBZ).
In its Weekly Economic Highlights for the period ending October 17 the central bank says there is also need to address other constraints to production such as foreign exchange shortages, inadequate fuel and electricity and unsustainable pricing structures, among others.
“Given the vagaries of high inflation in the economy, the need for concerted efforts to fight the current high inflation cannot be overemphasised,” the RBZ said.
“Inflation reduction requires both supply-side policies to address structural rigidities and unlock the economy’s capacity to produce goods and services as well as demand management policies which restrain expenditure on non-productive activities.”
In his 2004 national budget statement the Minister of Finance and Economic Development Herbert Murerwa admitted that inflation was the country’s number one enemy.
He said the country’s economic progress depended on its ability to curb soaring inflation currently standing at 525,8%.
The RBZ said through the National Economic Revival Programme (Nerp), government had enunciated measures primarily aimed at resuscitating economic activity as well as fighting inflation.
Analysts have however blasted Nerp saying it is much ado about nothing and is a rehash of policies that have failed before.
They point out that all targets in government’s economic programmes are consistently missed.
“As an integral part of these measures, the current dual interest rate policy under which targeted finance facilities are provided at concessional rates, while high rates apply on consumptive, speculative and non-essential borrowing has a built-in mechanism to stimulate economic growth, while at the same time containing inflation,” the RBZ said.
It said surging inflation in the economy posed the greatest challenges to economic stabilisation measures and growth prospects.
“Inflation erodes the real value of money, making it unworthwhile to save or invest,” the RBZ said.
“It frustrates business and investment planning, and thus, destroys capacity to generate wealth in the economy. The prevailing high levels of inflation have also impacted negatively on the country’s low age earners, pensioners and others on fixed incomes, thus worsening poverty levels.”
Inflation has escalated sharply in the last three years, rising from an average of 55% in 2000 to 455,6% by September and 525,8% in October.
This has significantly eroded the purchasing power of currency – $1 in 1995 is now worth less than a cent at current price levels.
Inflation in Zimbabwe has been a result of both demand and supply side factors.
Broadly, high inflation has emanated from monetary expansion, supply bottlenecks due to decline in economic activity and pass-through effects of exchange rate depreciation, among other causes, the RBZ said in its report.