RBZ warns against price instability

Published: 17 hours ago

The Reserve Bank of Zimbabwe (RBZ) has issued a cautionary note on the dangers posed by exchange rate volatility, stressing that fluctuations in the value of the local currency could severely undermine price stability and disrupt the broader economy.

RBZ chief economist Edmore Jaya made the remarks during the Institute of Administrators and Commerce annual conference and the Sixth Procurement and Logistics Conference 2025 held in Kariba yesterday.

Jaya highlighted that the main risks to price stability in Zimbabwe are largely driven by exchange rate movements and cost-side pressures. He warned that even marginal changes in the exchange rate could trigger immediate and widespread price shifts, particularly in sectors sensitive to foreign exchange dynamics.

"We need to ensure that the exchange rate is stable so as not to disrupt the pricing system," said Jaya.

Drawing on international comparisons, he cited Estonia as a case where exchange rate pass-through effects on prices were swift and direct.

"Every time the exchange rate moves on the power of marketing, you know that prices instantly digest it-particularly in a tech shop or if you are staying in a lab. That pass-through is almost one-to-one," he explained.

The RBZ has implemented a series of policy interventions aimed at curbing inflation and anchoring the local currency. These include raising the bank policy rate to 35% and tightening liquidity through increased statutory reserve requirements. The central bank has also liberalised the exchange rate, granting it greater flexibility to respond to market conditions.

The central bank's interventions come amid persistent concerns over the Zimbabwe Gold (ZiG) currency's performance and its ability to retain value in an economy that has experienced repeated episodes of hyperinflation.

Jaya's comments underscore the RBZ's recognition of the exchange rate as a key economic lever-and a potential vulnerability-as authorities try to steer the country toward macroeconomic stability.

The Zimbabwean economy continues to face multiple structural challenges, including low productivity, a large informal sector, and limited foreign direct investment, all of which compound pressure on the exchange rate and prices.

Analysts say the RBZ will need to complement monetary tightening with broader fiscal reforms and efforts to build market confidence if it is to achieve long-term price and currency stability.
- Newsday

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