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Pressure
piles on Zimbabwe central bank to devalue dollar
ZimOnline
June 13,
2006
http://www.zimonline.co.za/headdetail.asp?ID=12269
HARARE - Pressure
is piling on Zimbabwe's central bank to depreciate the official
exchange rate amid analyst projections that rising inflation could
drag the price of the local dollar on the unofficial parallel market
in coming weeks to more than 420 000 against the American unit.
The southern
African country's annualised rate of inflation raced to 1 193.5
percent in May from April's 1 042.9 percent as a six-year-old economic
and political crisis worsened.
Economic experts
have warned that the upward inflation spiral would leave Reserve
Bank of Zimbabwe governor Gideon Gono with no choice but to allow
the local unit to slide in the coming weeks.
"Such action
will diffuse speculative pressure on the Zimbabwe dollar by bridging
the differential between the exchange rate and inflation," said
an economist with a Harare-based commercial bank, who declined to
be named for professional reasons.
A Harare economist,
James Jowa, noted that the monetary authorities were caught between
a rock and a hard place in that it was not guaranteed that any devaluation
now would trigger the required supply response on the foreign exchange
market.
"It is a tricky
situation and they (the authorities) know that as long as they don't
address issues to do with the supply constraints, the economy will
not move," said Jowa.
Efforts to address
foreign currency problems are hampered by the fact that the government
has since the beginning of the economic crisis in 2000 made it difficult
for individuals and others to buy hard cash on the official market.
All the hard
currency coming in through the official channels is reserved for
so-called strategic sectors.
"This, coupled
with the sub-economic exchange rate on the official market, has
effectively meant that no one is prepared to part with their hard
cash at the low exchange rate unless they are sure they will be
able to buy it at something closer to the official rate," said the
bank economist.
Gono, who has
predicted that inflation would decline to about 400 percent by year-end
before slowing down to less than 50 percent by mid-2007, has since
January resisted pressure to devalue the local currency.
The Zimbabwe
dollar has been officially pegged at 101 000 to the United States
greenback for about two months, having marginally slided from 99
201against the US unit.
The embattled
currency is, however, trading at between 320 000 and 330 000 to
the American dollar on the illegal but thriving foreign currency
parallel market, which is more reflective of market sentiment.
The analysts
noted that based on monthly inflation figures, the unofficial exchange
rate could climb to between 410 000 and 420 000 against the US dollar
by mid-July.
"This, however,
assumes that monthly inflation remains at 28 percent during the
coming month which is highly unlikely at the rate we are going,"
said the bank economist.
According to
the Central Statistical Office, prices of goods rose by 28 percent
between April and May compared to 21.1 percent between March and
April.
More pressure
on prices during the coming month is expected to come from recent
increases in transport costs and electricity tariffs.
The state-run
Zimbabwe Electricity Supply Authority announced a 95 percent tariff
hike effective this month, while urban transport operators increased
commuter fares by more than 30 percent in the past two weeks.
The cost of
bread also went up during the past fortnight, exerting more pressure
on the June inflation figure.
The rate of
inflation is seen breaching the 1 300 percent mark in June. - ZimOnline
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