Earlier today we warned that there would real and dire consequences after the first auction saw the official exchange rate going up to $57 ZWL up from a fixed position of $25 ZWL. The first knock on effect was the price of fuel going up yesterday to over $71.62 per litre of petrol and $62.77 for diesel. This was always bound to have real consequences on the entire economy and we are beginning to see some of the trickle down effects. Bread prices have gone to $86 ZWL per standard loaf.

The trouble with fixed exchange rates

For four years the RBZ and the government have refused to countenance a real market-driven exchange rate. First, they claimed 1:1 was the real exchange rate even when market rates said was double and later triple that. Then it was $3.5 as to 1 USD followed by a manipulated interbank rate which they crowned with another fixed exchange rate in March.

Every denial was always followed by an admission and adjustment but these adjustments are always too little too late. The trouble with manipulated rates is that there will be severe shock in the economy once the rate is let lose. The sort of shock that kills economies, creates anger and chaos.

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