Uptake of bond notes, cash crisis spike inflation

HARARE - The increasing uptake of bond notes and worsening cash shortages inducing premiums on products is pushing up inflation, leading think-tanks have said.

This comes after consumer price index (CPI) inflation continued on its upward trajectory last month after more than two years of deflation.

Zimbabwe recorded inflation of 0,21 percent year-on-year in March, compared to inflation of 0,06 percent year-on-year in February.

This comes as US dollars have almost vanished from the open market as banks refuse to dispense the currency to clients.

“We therefore expect consumers to increase the uptake of bond notes due to there being few alternatives — in addition to pressure and incentives from government,” Cape Town-based NKC African Economics analyst Chantelle Matthee said.

“Although the Reserve Bank of Zimbabwe (RBZ) stated that no further bond notes will be released anytime soon — which could avoid further inflationary pressures through the printing of money — the government is planning to broaden acceptable collateral to improve production and exports in Zimbabwe,” she said, referring to a new law presented to the National Assembly last week that allows rural poor to deposit cattle as collateral for cash loans, with the Movable Property Security Interests Bill  receiving wide cross-party support.

“However, it is difficult to determine where the cash funds for credit will come from when the country is currently cash-strapped,” Matthee said.

“Regardless, Zimbabwe’s government has been floating the idea to use movable assets as collateral since 2012 with no actual implementation to date. We currently predict that inflation will average around the one percent level this year.”

Low confidence in the banking system has led to consumers rapidly withdrawing hard cash from banks. As a result, banks implemented a withdrawal limit on consumers and businesses. So far the Reserve Bank of Zimbabwe (RBZ) has pumped in $120 million worth of bond notes.

Financial research firm, Equity Axis said inflation will remain on a rise for the greater part of 2017 and this will mainly be driven by cash shortages, import substitution and a marginal increase in production.

“Cash shortages induce premiums on products depending on mode of payments, the less cash equivalent the mode is, the higher the premium,” Equity Axis said in a commentary.

The country currently uses a four-tier payment mode in the form of US dollar, bond notes, mobile money and Point of Sale (Pos).

“The shortages of cash also negatively impacts on products supply, thereby resulting in a market disequilibrium. To correct the disequilibrium, prices will have to rise, in turn driving inflation upwards.”

Equity Axis said following the institution of Statutory Instrument (SI)64 legislation, the market became highly vulnerable to price distortions.

Comments (2)

USD is gone from the market, next is live stock. Poor animals will not have time to feed , being constantly moved around. A school can easily have +300 goats, then struggles to manage them, In less than five years all country's live stock might be owned by less than 10 people. 21st century the world is moving fast, transactions in animals its scary.

X-MAN IV - 23 April 2017

Ahh Zimbabwe wake up honestly Using goats for money! The world thinks we are backward

Young Zimbo - 24 April 2017

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