Gono’s efforts not good enough – DCZ

Roadwin Chirara

THE Discount Company of Zimbabwe (DCZ) has accused Reserve Bank governor Gideon Gono of failing to effectively deal with the country’s economic challenges.



T face=”Verdana, Arial, Helvetica, sans-serif”>In its monthly economic update, DCZ said the recent rise in inflation by 0,9% was not consistent with the central bank’s efforts to curb inflation to levels of 20- 30% by December.


The annual inflation rate figure rose to 133,6% from 132,7% in December last year.


“It definitely does not send a good message to the nation about the governor’s ability to conquer this inflation scourge, which has been dubbed enemy number one,” said the company.


DCZ said the development was likely to confirm reservations that the International Monetary Fund executive board has on the country’s proposed recovery programme.


“This corroborates the IMF executive board’s reservations about the sufficiency of the current economic policy arsenal designed to fight inflation and turn the economy around,” said DCZ.


The IMF board is reported to have called for the immediate withdrawal of Zimbabwe from the institution for lack of co-operation on its obligations to the fund.


DCZ said Gono’s fight against inflation was unlikely to succeed as factors such as effective liquidity management, availability of foreign currency and the outcome of the current agricultural season all remained uncertain.


The financial services company said the persistence of negative real interest rates was fuelling speculation on the local market which was in turn impacting on the prices of assets.


“Real interest rates remain negative, thereby giving rise to speculative activities as exemplified by the advent of the foreign currency parallel market boom, stock market bull-run and a rise in property prices, all of which cause asset price inflation,” said DCZ.


The company said the current shortage of foreign currency in the market where US$11 million was made available for the month of February against demand of US$93 million, was likely to be worsened by the need for food imports due to the uncertain 2004/5 rainy season.


“The resultant inevitable food imports should put a further strain on the already precarious foreign currency situation,” said DCZ.


It said the recently introduced exporters incentives by the central bank where exporters would be allowed to hold on to 70% of their foreign currency earnings for 90 days was also impacting negatively on the funds available on the RBZ’s foreign currency auction.


The company said the current situation, which has been revised from the previous 30-day retention period, was increasing the number of rejected bids on the auction and pushing the black market rates to the current levels of $12 000/US$1.


DCZ said investors were not in agreement with Gono’s inflation forecast in his fourth quarter review, with most of them reluctant to invest for periods of more than six months.


The company said the situation had been worsened by reservations of the IMF on the country’s recovery strategy.


The company said the situation was evident in the money market where offers for 91-day treasury bills have declined with bids of $20 billion being received for paper valued at $200 billion on offer.


“Attempts to issue six months paper flopped on February 18 and 21 as no bids were received. In the $200 billion, 365-day TB tender on February 14, no bids were received,” said the monthly update.


The discount company said the central bank’s efforts to contain positive real interest rates between 10-20% had been dealt a major blow as yields for 90-day NCD’s were currently hovering at a negative 65%, indicating a negative real interest rate of 56%.


It said the situation was seeing investors turning to the equity, foreign currency and property markets.


“There has been tremendous excitement in the stock market since January this year with the industrial and mining indices breaking record territories,” said DCZ.


The situation in the equity market has seen the industrial index rising by 117,56% in January, compared to 17,15% recorded during the same period last year.