RBZ stands by 7.44% economic recovery forecast, sees below 10% year-end inflation

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Reserve Bank of Zimbabwe Governor, Dr John Mangudya
  • 7.4% annual GDP growth target in 2021 on the back of two consecutive recessions
  • Annual inflation to close the year below 10%
  • Growth anchored on agricultural output in 2021

HARARE – The Reserve Bank of Zimbabwe (RBZ) chief reaffirmed optimism that economic growth of 7.4% in 2021 is achievable while giving an overly ambitious target that annual inflation of near 400% will close the year at below 10%.

In the 2021 Monetary Policy Statement released on Thursday, Governor Dr. John Mangudya said the measured optimism is based on the expected significant growth of the agricultural output in 2021, as a result of the good rainy season, fiscal sustainability, and the Bank’s focus on price and financial system stability.

“It is in this context that the primary focus of this Statement is to ensure that inflation is under control and that the foreign exchange auction system is sustained to support the growth of the economy,” said Mangudya.

The country has seen the year start under severe economic depression exacerbated by the continued COVID-19 induced lockdown, while the Zimbabwe dollar has seen a poor run against the US dollar on the foreign currency auction system.

January inflation came in at 362.63% year-on-year up from 348.59% recorded last December. The month-on-month inflation rate in January was 5.43%, gaining 1.21 percentage points on the December 2020 rate of 4.22%, according to the Zimbabwe National Statistics Agency (ZIMSTAT).

However, Mangudya is adamant that the year-end inflation target will be achievable underpinned by a targeted month-on-month inflation rate of below 3%. He said that the expected decline in annual inflation to single-digit levels will allow banks to meaningfully remunerate depositors while achieving positive interest rates in real terms.

Meanwhile, Magudya repeated that the Bank shall soon be introducing a ZW$50 banknote to augment the current stock of banknotes in circulation while dismissing fears this could trigger a spike in inflation.

“The Bank reiterates that banknotes, new or old, do not cause inflation in an economy since they do not increase money supply,” said Mangudya.

“Cash payments are an alternative to other methods of transacting and do not constitute money creation. Price dynamics are influenced by the level of money supply in an economy as opposed to its composition (electronic money, transfers, cash, etc.), hence the Bank’s firm commitment to keeping the level of money supply growth under control through its conservative or hawkish monetary targeting framework”.

Consistent with the inflation targets and the 7.4% economic growth rate, the Central Bank is aiming to reduce the quarterly reserve money growth from the 25% quarterly target in 2020 to 22.5% per quarter in 2021.

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