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Exchange Rate Pricing Condemned

By Michael Tome
A local banker has condemned exchange rate-based pricing currently obtaining in the economy, arguing rate fluctuations do not essentially translate to upward shift of product prices.

ZB Financial Holdings chief executive Ronald Mutandagayi’s sentiments follow a trend of steep pricing by local retailers on the pretext of hedging against rates upwards movement.

Some price hikes have been instituted when the exchange rate goes up, but never revert back when the rate lowers, posing an unjustified increases of commodities.

Speaking on the sidelines of the ZB Financial Holdings analyst briefing recently Mr Mutandagayi highlighted that the pricing was not reflective of production compositions and that exchange rate variations do not in effect translate to price hikes.

“We have lost the basis for pricing everyone seems to be looking at their price and say the exchange rate is at ten so my price must go up.

“It doesn’t necessarily lead to price increases, there is a component of exchange rate in what you produce there is a component of local cost,” said Mr Mutandagayi.

He indicated that he understood the move was necessitated by desire to hedge their funds but called for a mentality shift amongst business community as they risk limitation of their profits in the long run due to a restricted customer base.

“I think it’s a cultural thing that has hit Zimbabweans at this point in time, I understand what they are trying to do, they are hedging but when you hedge and then affect your customer base that means your profitability will be affected in the long-term.

“So I implore our economic players to be responsible about it, let’s take a product that requires 30 percent of foreign currency content surely you should not increase your price because the exchange rate has moved by one or two percentage points you must be able to look at capacity that foreign exchange has of your product and then you price appropriately,” he said.

The Reserve Bank of Zimbabwe (RBZ) Governor Dr John Mangudya, is on record slamming businesses for wantonly raising prices of basic commodities based on the movement of the exchange rate, saying it was not a significant factor to determine the value of a product.

“While giving oral evidence before a Parliamentary Portfolio Committee on Information Communication Technology and Courier Services earlier this year Dr Mangudya said; “Let me remove the myth about exchange rate. Not all the cost of production come from foreign currency. Sometimes in a product, maybe the import component is 10 percent, or 15 or 20 percent. You cannot use an exchange rate for determining the price of a product every day.

“You do not need to track the exchange rate on a daily basis. If your cost of production is 20 percent foreign currency, I think it would be wrong to use exchange rate as a price determining factor, which I see in Zimbabwe,” said Dr Mangudya.

Source :

The Herald

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