RBZ warned against over printing notes

HARARE - The central bank has been warned against keeping the printing press busy in an effort to ease the country’s biting liquidity crisis.

South Africa-based research firm NKC Economics (NKC) yesterday said overprinting bond notes would put a strain on local prices leading to high inflation.

“Should government start printing more bond notes than it has backing for in United States dollars in order to stimulate economic activity, the risk exists that the bond notes could lose value fairly quickly, which would put upward pressure on the domestic price level,” NKC economist, Jared Jeffery said.

This comes as the apex bank introduced bond notes last month backed by a $200 million facility from the African Export-Import Bank (Afreximbank) and the note trading at par with the greenback.

However, there are fears that the Reserve Bank of Zimbabwe may resort to over printing the surrogate currency to plug budget deficit.

NKC’s warning comes after the country’s deflationary pressure increased marginally in November, according to the Zimbabwe National Statistics Agency (Zimstat)’s most recent consumer price index (CPI) publication.

Headline deflation accelerated from 0,95 percent year-on-year (y-o-y) in October to 1,09 percent y-o-y in November.

The food and non-alcoholic beverages sub-index, which carries a 33,5 percent weighting in the CPI basket, decreased by 1,54 percent y-o-y in November compared to a decrease 2,03 percent y-o-y in October.

Non-food deflation, meanwhile, came in at 0,89 percent y-o-y in November compared to 0,45 percent y-o-y in October and on a month-on-month basis, inflation slowed marginally from 0,09 percent in October to 0,02 percent in November.

Early this month, Finance minister Patrick Chinamasa said government expected inflation to average 1,1 percent next year compared to -1,5 percent this year.

“While food price deflationary pressures continue to ease — in large measure due to supply side constraints brought about by adverse weather conditions, foreign currency shortages and import restrictions — the November inflation reading indicates that the strong US dollar relative to the rand continues to keep upward price pressures subdued.

“In addition, the issuance of bond notes have yet to alleviate domestic liquidity shortages to a significant extent,” Jeffery said.

However, the think-tank recommended that the country undertake fiscal consolidation measures to boost the country’s dwindling revenues.

Zimbabwe’s economy — marred by a plethora of challenges, which have resulted in company closures and retrenchments, weighing on fiscal revenue and hence limiting the fiscal space — could see the central bank forced to over-print the country’s new surrogate currency, the bond notes.

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