HARARE (Bloomberg) –Reserve Bank of Zimbabwe Governor, John Mangudya, is reluctant to act to narrow a widening gap between the national currency’s official and black market rates, saying that businesses are to blame for the disparity.
While the Zimbabwe dollar has been allowed to gradually weaken from parity with the greenback in February 2019 to almost 109 to the dollar today, it trades at over 200 to the dollar on the black market, stoking inflation.
Business leaders have blamed the disparity on a lack of foreign currency supply though Mangudya says its due to many businesses of accepting payment in U.S. dollars at the unofficial, or parallel market, rate.
“We would love convergence, but it requires the business community to also walk the talk,” he said Monday in an interview in the capital, Harare. “Convergence must be at a realistic exchange rate.”
A weekly foreign currency auction run by the central bank resumed Tuesday after a more than month-long gap over the Christmas holidays.
“Delays only help in promoting the parallel market as a source of U.S. dollars,” the oldest brokerage in the country, Imara Asset Management Ltd., said in a note to clients this week.
Business has said it is at the receiving end of the currency rate disparity. It struggles to obtain the foreign currency which it needs to keep operations running and is forced to turn to the parallel market.
The Confederation of Zimbabwe Industries, the largest business lobby group in the country, in October warned a policy response from authorities was needed to save the local unit from collapse.
“Such a gap plays havoc” for companies, John Legat, the chief executive officer of Imara, said.
READ MORE: Zimbabwe Business Warns Currency in Peril, Urges Policy Response
To have the official rate move to match the parallel market rate is “like chasing one’s tail,” according to Mangudya. The unofficial rate will only surge even higher, decimate the earnings of citizens and lead to price hikes in the southern African nation, where annual inflation was 61% in December,” he said.
“People just want to hold U.S. dollars,” said Mangudya.