WASHINGTON – Zimbabwe will have a new currency “within 12 months”, Finance Minister Mthuli Ncube said on Thursday.
Ncube, in Washington for IMF meetings, told Bloomberg that they were banking on the tobacco auction season to improve foreign currency availability in the country, which would hurt the black market.
Asked when Zimbabwe would have a fully-fledged currency of its own, Ncube replied: “In the next 12 months.”
Pressed further to narrow the window, he replied: “Currency reforms should never be precise. By saying 12 months I’m preparing minds, I’m preparing your mind, so it’s coming.”
The Reserve Bank of Zimbabwe scrapped its discredited 1:1 dollar peg for surrogate bond notes and electronic dollars in February, merging them into a lower-value transitional currency called the RTGS dollar, which initially traded at a rate of 2.5 to the greenback.
The RTGs traded at a record low of 3.1383 to the US dollar on Wednesday.
Zimbabwe is also raising interest rates “soon”, Ncube said, after setting the bank rate.
“Soon in the sense that we do need to create a reference rate which is the bank rate, and we’re establishing that. We really are re-establishing the role of the central bank as the lender of last resort and they need a bank rate which is the equivalent of the federal funds rate here in the US. The rates will go up, they have to go up and that will help stabilise the currency market but also help us manage monetary policy in the first place,” Ncube said.
Ncube’s hopes of a foreign currency influx have not materialised at the tobacco auction floors however, as farmers withhold their crop waiting for the price to improver and the central bank to increase their foreign currency share.
By Thursday, at least 8.1 million kilograms of tobacco worth about $14 million had been sold, down 78 percent from last year when $65,4 million worth of the golden leaf had been sold during the same period.
The average price for auction and contract floors stood at $1,75 per kg which is 36,7 percent lower than the $2,75 of the 2018 marketing season. The highest price stood at $5,10 per kg while the lowest was at $0,20.
Ncube told Bloomberg: “There’s demand for foreign currency in the market, foreign currency is always short. But we’re looking forward to an improved tobacco season. We earn about $1 billion from the sale of tobacco globally, so we expect that to stabilise the market over the next few months.
“Of course, it’s early days, we just introduced the new currency regime a few months ago, so it’s trying to find its equilibrium, it will get there and close that gap between the official and the floating market.
“The decline (of the black market) cannot carry on, you know why? Because on the fiscal front things are very tight because previously the fiscus was the source of money growth and therefore weakness on the currency.
“Things are very tight now, we’re running a surplus for the last four months in terms of the primary deficit so we don’t expect the currency to come under pressure, neither is money supply growing. On the contrary, we expect month-to-month inflation to go negative in the next few months, so the currency cannot run too far frankly.”