Zimbabwe’s central bank say the current depreciation of the Zimbabwe dollar is largely to sentimental reasons.
In its latest update of resolutions by the Monetary Policy Committee (MPC), Reserve Bank of Zimbabwe (RBZ) governor Dr John Mangudya said the fundamentals on the ground point to a stable currency.
“Committee noted with satisfaction that the economic fundamentals have remained strong to support a stable exchange rate as evidenced by a favourable current account balance, positive growth of the real sector, public works undertaken by Government, fiscal sustainability and a tight monetary policy stance.
“The positive trend in foreign currency generation has seen the country realising US$2.4 billion in foreign currency receipts during the first quarter of 2022, an increase of 15.9% compared to foreign currency received during the same period in 2021.
“The foreign currency receipts were against foreign payments of US$1.8 billion, leaving a surplus of US$1.9 billion. Money supply has also remained largely under control, with reserve money remaining stable at levels of around ZW$28 billion for the past six months, while annual growth in broad money fell from 384% in March 2021 to 151% in March 2022,” said Dr Mangudya.
The central bank’s auction rate is trading at around 165 to the US dollar, but the parallel market rates have spiked to around 380 to the dollar in recent weeks.
The RBZ governor said this depreciation on the parallel markets is just pure “sentiment”.
“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 inevitable losses incurred during currency reforms,” he said.
“The Committee further noted that the erosion of people’s savings due to inflation compelled them to try and avoid similar losses by holding the US dollar as a store of value.”