Zimbabwe hiked fuel prices by around half on Tuesday, the second sharp rise in four months, a day after the central bank effectively removed a subsidy by ending oil importers’ access to U.S. dollars at a favourable rate.
The fuel price rise, likely to push up the country’s soaring inflation rate, was accompanied by a plunge in the country’s RTGS dollar - which posted its biggest one-day fall against the U.S. dollar on the interbank market.
Oil firms started buying dollars on the interbank to import fuel on Tuesday, having previously been allowed to use a 1:1 dollar to RTGS$ rate.
The latest price increase had been expected. It followed a 150% fuel price hike in January, which sparked violent street protests and led to the death of a dozen people after a harsh security crackdown.[nL8N1ZE26M]
The Zimbabwe Energy Regulatory Authority (ZERA) said in a circular that diesel would now cost RTGS$4.89, up from RTGS$3.26, and petrol RTGS$4.97, compared with RTGS$3.38. It had earlier on Tuesday denied plans to increase the price of fuel.
The Reserve Bank had been under pressure to remove the fuel subsidy, with economists saying some fuel companies were accessing cheap foreign currency and selling it on the black market instead of importing fuel.
Traders at three commercial banks said the RTGS$ had weakened to a low of 4.6 against the greenback compared to 3.5 at the opening of trading on Tuesday, its biggest drop in a day since the interbank was launched on Feb. 22.
“We are still in a period of price discovery since the central bank said the exchange rate should reflect the market. It is still a buyers’ market and no sellers are coming in at this rate,” said a trader at a commercial bank in Harare.
On the black market, the RTGS$ was trading at 6 to the dollar, having come off highs of 6.3 last week Friday.
The fuel price hike will likely trigger another round of price increases in a country where the inflation rate reached 75.86% in April, the highest in a decade.
“On one end it is good that the fuel price now reflects the official exchange rate but the downside is that it will impact every cost in the country and put pressure on wages,” Harare-based economist John Robertson said.
The interbank market was meant to encourage businesses and individuals to trade foreign exchange using official channels and improve the flow of dollars.
But this did not happen, with traders accusing the central bank of manipulating the exchange rate, which forced many Zimbabweans to trade for dollars on a thriving black market.
The dollar crunch has led to prices of basic goods soaring. Some businesses charge for their goods in U.S. dollars to cushion themselves against the weakening local currency.
Treasury’s permanent secretary, George Guvamatanga, said the government would subsidize public transport and that the state bus company would charge a maximum of RTGS$1 for local trips to cushion commuters from the effects of the fuel price hikes.