Zimbabwe’s inflation rate is too low, and needs to increase to stimulate economic growth, central bank governor John Mangudya has said.
The central bank is also looking to increase the $200 million Afreximbank facility backing its bond note currency introduced last year to address a severe banknote shortage.
The notes trade at par to the US dollar and $160 million have been disbursed so far, but a local brokerage firm, IH Securities noted that only $9 million in bond notes were held by the banks as of April this year.
Zimbabwe remains in the throes of a cash shortage, and Mangudya’s comments will stoke fears of a return to hyperinflation.
Inflation reached 500 billion percent in 2008, leading the country to dump its Zimbabwe dollar for mainly the United States dollar.
The southern African nation is only starting to come out of deflation since February 2014 but Import controls and tight liquidity in the country have this year seen inflation edge from -0.65 in January to 0.75 percent in March.
Last week in a report the International Monetary Fund (IMF) said inflation would increase to 7 percent by year end while the World Bank forecast is 3.2 percent by end of the year, before accelerating to 9.6 percent at the end of 2018.
“As central bank governors in the region we have agreed that the range of conversion should be between 3 and 7 percent. If you are below that you cannot grow…we are still within the SADC benchmark …in fact we are still below the range which allows you to grow,” said Mangudya yesterday at a business symposium organised by the University of Zimbabwe.
“Other countries such as Angola and Tanzania have higher rates of inflation but they are still growing….our situation is unique. They can print local currency to finance their deficit but we cannot. Our deficit has to be financed by foreign currency.”
Government has often resorted to borrowing from the domestic market to finance its fiscal deficit which amounted to $1.4 billion last year.- The Source