HARARE: Zimbabwe's central bank on Wednesday urged companies to reduce the prices of their products and services, saying salary hikes being called for by workers would "choke the economy".
"I am convinced that the economy and consumers would benefit more from a price reduction than from increasing wages and salaries for obvious reasons," John Mangudya, Zimbabwe's central bank governor, said in a statement released to the media.
"Wage and salary increases would only serve to choke the economy."
Workers have been asking for wages increases after shops rounded up their prices following a coin shortage last year.
In December, the central bank introduced special coins -- trading on par with US cents -- to ease the shortfall which had forced shoppers to accept sweets or pens in lieu of change.
American dollars have been commonly used in Zimbabwe since 2009 after years of hyperinflation left the local currency worthless.
Mangudya said the new coins should be used effectively to reduce prices.
"Given the lack of competitiveness and its negative effects on the economy, we do not see any room for wage and salary increases within the national economy," he said.
"The welfare of consumers and employees should be addressed through the reduction of prices, disinflation, so that the current wages buy more."
Mangudya said Zimbabwe had a precarious balance of payments position, which had affected the country's ability to build foreign exchange reserves.
"Over the period January to December 2014, the country's merchandise imports amounted to $6.4 billion, which significantly surpassed merchandise exports of $3.1 billion, culminating in a trade deficit of $3.3 billion," he said.
"The subdued export performance reflected, in part, the retreat in international commodity prices, lack of competitiveness attributable to infrastructure deficits, high utility costs and high cost of capital and finance."
The central bank chief said the southern African country has been experiencing disinflation rather than deflation after inflation fell to negative levels last year.
"The Reserve Bank's considered view is that the reduction in the rate of inflation in the national economy was and is a necessary process towards correcting the high prices obtaining in the country," he said.
"The disinflation in Zimbabwe is therefore a good development as it increases the consumers' purchasing power."
The central bank said "annual average inflation, which fell from 3.7 percent in 2012 to 1.6 percent in 2013, declined further to minus 0.2 percent in 2014".
Zimbabwe's economy has been on a downturn for over a decade, characterised by high unemployment.
A liquidity crunch has forced companies to shut down, downsize or migrate to neighbouring countries, while a law which forced foreign companies to cede majority shares to locals scared off foreign investors.
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