Zimbabwe's currency plunged to new depths on Friday as the U.S. ambassador to Harare predicted galloping inflation will force President Robert Mugabe from office before the end of the year.
The Zimbabwe dollar, which is pegged to the U.S dollar and was effectively devalued by the central bank to 15,000 to the greenback in April, was trading in the 170,000-200,000 range on the thriving black market on Friday.
Just a week before, the black market exchange rate was about 95,000 to one U.S dollar, and 2,500 to one in January.
Once a regional bread basket, Zimbabwe has suffered chronic food shortages since 2001 and is gripped by an economic crisis critics blame on Mugabe's controversial policies such as the seizure of white-owned farms to resettle landless blacks.
In an interview with the British Guardian newspaper, U.S. Ambassador Christopher Dell said Mugabe's government was effectively committing regime change on itself.
I believe inflation will hit 1.5 million percent by the end of 2007, if not before, he said. I know that sounds stratospheric but, looking at the way things are going, I believe it is a modest forecast.
Economic analysts said the latest plunge of the Zimbabwe dollar was largely due to public fears that inflation would only get worse coupled with speculation that the Central Bank itself was now purchasing foreign currency on the black market to finance agriculture and other projects, although this could not be independently confirmed.
Mugabe -- Zimbabwe's sole rule since independence in 1980 -- has accused the southern African country's opposition and Western countries of plotting to unseat him and has been accused by critics of a draconian crackdown on political opponents.
On Friday, Zimbabwe's High Court ruled that hearings in the case of five men accused of plotting to topple Mugabe would be closed to the public and the media -- the latest sign of political tensions gripping the country.
CENTRAL BANK WARNING
The defiant leader, 83, has said he will stand for re-election after his current term ends next year and denies allegations that his government has committed human rights abuses.
The fall of the currency prompted central bank head Gideon Gono to warn that authorities could soon crack down on illegal foreign currency trading.
It has become inevitable to fully crack the whip on those institutions and individuals who are willfully breaking the banking, anti-money laundering and exchange control laws, Gono said in comments carried by the official Herald newspaper.
Prices of fuel and basic consumer goods have risen sharply over the past two weeks, with the Consumer Council of Zimbabwe saying the cost of living for an average family of six has almost doubled in one month.
Official figures released by the Central Statistical Office show that prices doubled within one month in April, with the monthly inflation figure topping 100 percent.
The state agency is yet to present May data, but analysts put the year-on-year figure above 4,500 percent and expect the trend to continue.
Eight successive years of recession has left four out of five Zimbabweans without jobs and many struggle to feed their families, a situation analysts say could further stoke political tensions.
People have completely lost faith in the currency and that means they have lost faith in the government that issues it, said Dell, who is close to the end of his posting to Zimbabwe.
Things have reached a critical point. I believe the excitement will come in a matter of months, if not weeks. The Mugabe government is reaching end game, it is running out of options.
(Additional Reporting by Sophie Walker in London)