The market is speaking and I’m not arguing with it – Mthuli

Finance Minister Mthuli Ncube

THE exchange rate upheaval, which has triggered steep price increases since last week’s fiscal and monetary policy pronouncements are market dynamics which government cannot go against, Finance Minister Mthuli Ncube said on Monday.

Ncube and central bank governor John Mangudya’s tax and currency proposals have seen a sharp weakening of the country’s unofficial currency – electronic balances and bond notes that are not backed by foreign currency stocks.

As a result, the electronic balances were trading at 1:3.5 against the United States dollar on Monday afternoon, from 1:2.2 before the policy interventions.

Speaking at Chatham House in London, Ncube suggested the turmoil – marked by the shortage of some basic food items and fuel – were the result of market correction.

“…we’re just going through that transition phase, managing that transition phase but the market is already speaking for itself. Look at the RTGS exchange rate or the bond note exchange rate, the market is already saying ‘hey, these are not at par.’ I’m not about to argue with the market,” Ncube said.

“Of course it’s clear that at some point, maybe the bond notes will have to be de-monetised, replace them with US dollars once we get a good credit line for it, but the timing of that, I cannot tell you. It’s gonna happen.”

On Monday, President Emmerson Mnangagwa backed Ncube’s reforms and committed to stay the course.

“I have read your comments and understand the difficulties many face, and Government will do all in its power to minimise them. We are already taking the lead by cutting back on unnecessary spending. The only way to a stronger economy is to restructure, rebuild and reform,” Mnangagwa said in a Facebook post.

“We must all be realistic. Whatever some may claim, there are no silver bullets or quick fixes. There is no need to panic, and Government is guaranteeing the availability of all essential commodities, including fuel.”

On Sunday, the central bank announced it had started drawing down on a US$500 million African Export Import Bank facility for essential imports such as fuel, electricity, wheat and cooking oil raw materials and packaging.