Inflation to close at 2%: Mangudya

Inflation is seen closing the year at 2%, central bank boss John has said.

By Chris Muronzi

The International Monetary Fund a fortnight ago said inflation would end the year at 7%.

“For years, we had deflation. Inflation at current levels is nothing to worry about as it is below the 7% for sub Saharan Africa,” Mangudya said. “What is needed is inflation management. I don’t think it will be at the level being touted by some of friends whom I can’t mention by name (an apparent reference to IMF).”

He said inflation outturn in the remaining half of 2017 will be influenced mainly by domestic fiscal developments, foreign exchange availability, international oil prices and the US dollar/South African rand exchange.

“The annual headline inflation rate, which had been in deflation since September 2014, moved into positive territory from -0,65% in January 2017 to 0,31% in June 2017 as a result of the expansionary fiscal policy stance which saw fiscal deficit rising to US$1,4 billion in 2016,” Mangudya said.

“The fiscal deficit which emanated mainly from drought related expenditures, legacy debt and agricultural expenditures was mainly financed from domestic sources through the issuance of Treasury Bills (TBs) and reliance on the Reserve Bank overdraft facility.”

This, he said, increased the amount of money in circulation.

“Overall, inflation is expected to remain in the positive territory in 2017, with annual average inflation projected at between 2% and 3%, which is in line with the Southern African Development Community (Sadc) inflation benchmark of between 3% to 7%,” Mangudya added.

“The bank shall continue to monitor and manage downside risks to inflation emanating from domestic factors particularly the pass-through effect of a fiscal induced foreign currency shortages on premiums and multiple pricing practices in the domestic economy.”

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