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Businesses Flout Exchange Rate Rules, Spike Inflation

Business players are increasingly flouting exchange rate regulations compelling them to quote price of goods in both the local and foreign currency using the official exchange rate a development that has spiked inflation since the beginning of the year, 263Chat has established.

Last year, President Emmerson Mnangagwa made changes to Exchange Control Regulations (Exclusive Use of Zimbabwe Dollar for Domestic Transactions) (Amendment) 2020 (No.3), which amends the original subsidiary legislation that compelled sole use of local currency.

Under the amendment no one can provide goods or services in Zimbabwe without displaying, quoting or offering the price of such goods and services in both the Zimbabwe dollar and foreign currency at the ruling exchange rate.

While some formal retail outlets like, OK Zimbabwe, TM and Spar have consistently conformed with the ruling exchange rates, there are some formal retailers flouting the ruling  ZWL$ 83/USD rate when quoting prices in the local currency.

A survey by this publication revealed that retail outlets such as Food World Supermarket are using ZWL$ 95/USD rate with fast-food outlet, Chicken-inn rating even higher.

This has led to prices skyrocketing in the local currency despite that the local currency has been relatively stable for over eight months-oscillating between ZWL$81 and ZWL$ 83 since July last year.

As it stands, the market now has more than two exchange rates namely, the official rate (ZWL$ 83/USD), the one used by some retailers (ZWL$ 100/USD) and the black market rate (ZWL$ 120/ USD).

According to the Zimbabwe National Statistical Office (Zimstat), inflation gained 5.43 percent (month-on-month) in January – a 1.21 percentage gain from December 2020 level of 4.22 percent.

The month on month non-food inflation rate stood at 3.70 percent, gaining 1.07 percentage points on the December 2020 rate of 2.63 percent.

The effects of flouting exchange rate regulations on inflation rate are more pronounced in the informal sector, which mainly trades using the parallel market rate which now hovers around ZWL$ 120/USD.

Efforts to get a comment from the Confederation of Zimbabwe Retailers president, Denford Mutashu failed to materialize but in a recent interview with state media, Mutashu attributed the price hikes to the recent increases in fees for essential commodities like electricity and fuel.

But the recent hikes in electricity and fuel are just a mirror of inflationary developments unfolding since tail-end of last year driven by the gradual increase in the exchange rate which is underpinned by money supply growth in the economy.

According to the Reserve Bank of Zimbabwe (RBZ), reserve money for the week ending 29th January 2021 increased by ZW$3.32 billion to ZW$21.93 billion, compared to its position last week largely attributed to maturity of bonds and a ZW$424.93 million issued by the bank during the week.

It appears businesses are welcome to offer a higher price for the USD in local currency due to the growth in money supply.

The trend in excess liquidity has been glaring in the stock markets lately, where the Zimbabwe Stock Exchange market capitalization since opening in January this year grew from ZWL$ 318 billion  to ZWL$ 500 billion to date.

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