Economists have down-played the inflationary impact of the recent removal of cash withdrawal restrictions at commercial banks by the Reserve Bank of Zimbabwe (RBZ).
FONT face=”Verdana, Arial, Helvetica, sans-serif”>Economic consultant Eric Bloch said the cash withdrawal restrictions were a hindrance on the productive sector.
He said the situation discouraged economic growth because of the controlled monetary situation.
Bloch said the situation of withdrawal restrictions was increasing administration problems for companies.
The RBZ had introduced a system whereby individuals could not withdraw any cash amount more than $2 million in a day and $5 million for companies.
The move was meant to try and stop speculative behaviour which had become rampant on the market due to the parallel market for foreign currency.
While the Zimbabwe dollar was officially pegged at $824 against the United States greenback, it was going for about $7 000 on the parallel market, forcing individuals to move around with bags of money while others carried the cash in their vehicle boots.
“Companies could not get enough money to buy inputs and pay salaries because the amounts offered by the banks were too little to cater for their needs and so this is a welcome move,” Bloch said.
He argued that the availability of funds to companies would allow increased production because their funds would be easily accessible to them.
However some analysts say the decision to remove restrictions could spur annual inflation, currently at 505% to higher levels.
Month-on-month inflation stands at 4,8% having come down from 5,8% previously, according to the Central Statistical Office (CSO).
They said because individuals would now have more money at their disposal, they would be able to spend on consumer items without questioning the amounts needed for goods.
Last week the prices of most consumer goods such as bread, milk, soap and sugar was increased.
School fees, electricity, fuel as well as mortgage rates have also gone up unnoticed during the past month.
Bloch said inflation would continue to decrease, noting that the reduction of tarriffs by the Zimbabwe Electricity Supply Authority (Zesa) as factors that had encouraged a downward spiral of inflation.
He reiterated the need to review the basket used to measure inflation.
“We have been using the same basket since 1994 and it has to be reviewed but you should note that it is still relevant,” Bloch said.
Trust Banking Corporation Ltd chief economist David Mupamhadzi said the
move to withdraw cash restrictions was long overdue but noted that its impact on inflation depended mainly on the response of economic agents.
“The Reserve Bank has managed to rationalise the situation on the ground thus cash is now available and this is good for the economy,” Mupamhadzi said.
He said since the economy was mainly driven by the informal sector this would only encourage increased activity in that sector but would not have an impact on inflation.
“This is only going to allow the informal sector access to cash for their business of which this is the major component for their business,” Mupamhadzi said.
He noted the need to deal with other issues such as sectoral salary adjustments and the recent civil servant salary adjustments and its impact on the performance of the economy.
Century Holdings Ltd chief economist Moses Chundu said the removal of cash restrictions would allow and facilitate economic growth.
He said this would allow individuals to carry out geniune business, noting that it would encourage them to invest since the markert was offering good rates.
“Inflation will definitely go down because the central bank has managed to put inbuilt mechanisms to fight that,” Chundu said.
He said there was need to restore normalcy to the agricultural sector which is the major earner of the country’s foreign currency and has a significant effect on the economy.
“Agriculture has not been doing well and we have a long way to go before we restore the backbone of the economy,” Chundu said. “Arda cannot expect to export to markets which Kondozi used to supply because they are going to decline to buy the produce for some reason or the other.”
Kondozi, which exported produce to Europe, was recently taken over by Arda as part of government’s land resettlement programme.