Government recently opened the exchange rate market when it relaxed the policy which forbade people from transacting in forex.
"Retailers have responded to the 1:25 fixed exchange rate announced recently by the Central Bank by increasing prices based on parallel market rates. This proves the micro-economics principle that "prices are sticky downwards," Mashakada said."In other words despite redollarization the much expected fall in prices has been blunted by retailers who have adjusted prices upwards. Expectations and low confidence are wreaking havoc on the market. The unintended effect of the fixed exchange rate has had a boomerang effect versus the price stabilizing effect of dollarization."
He said in policy economics they call it the conflict of macro-economics objectives which result in unintended consequences.
"Do it you are damned. You don't do it you are damned. It's confidence Stupid," he said.
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