Surging Inflation Forces Zimbabwe’s Central Bank to Adjust Target

John Mangudya
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HARARE (Bloomberg) — Zimbabwe’s central bank is revising its inflation forecast upward after annual price-growth surged to more than 100% this month.

Factors including shortages of everything from corn to cooking oil stoked by the war in Ukraine, rising fuel prices and domestic exchange-rate volatility are reasons to adjust the outlook, Reserve Bank of Zimbabwe Governor John Mangudya said in a phone interview Monday. The bank said at the start of 2022 it expects inflation of 25% to 35% by year-end.

“We are doing a recalibration of the numbers,” he said. “We are concerned with inflation going up like any other country in the world.”

He declined to specify what the new year-end forecast will be.

Zimbabwe’s annual inflation rate jumped to 131.7% this month — the highest in 10 months — from 96.4% in April, as food prices almost tripled. The increase has been fueled by a sharp depreciation in the Zimbabwe dollar that spurred authorities to use a variety of strategies to stem its decline, including a 10-day ban on bank lending.

The Zimbabwe dollar is the worst-performing currency in the world. It officially trades at Z$290.89 per US dollar, having weakened 63% against the American currency so far this year.

The recent convergence between the official exchange rate and an interbank rate that the government has permitted businesses to use for commerce is “a good move” meant to remove arbitrage opportunities, Mangudya said. The interbank rate is at Z$299.68 per U.S. dollar, according to data available Monday on the central bank’s website.

The governor also expects the parallel market rate of Z$400 per U.S. dollar to remain “stable” given the measures announced by authorities to stabilize the economy including the use of the interbank rate in most transactions, a freeze on money supply growth and allowing citizens to import basic goods.

A gap of 20% between the interbank and parallel market rates is acceptable, though authorities are monitoring it closely, according to Mangudya.

“Anything above that causes inflation,” he said. “The very idea of parallel means side by side. If it’s running away from the other, it can no longer be parallel.”