Zimdollar faces massacre this year
THE Zimbabwe dollar is this year expected to plunge against major currencies as money supply surges ahead of the next general election, derailing government’s interventionist measures announced last year to stabilise the economy, an investment firm says.
Already, the Zimbabwe dollar has depreciated against
the US dollar at the foreign currency auction conducted by the Reserve Bank of Zimbabwe (RBZ) on 10 January 2023.
The official rate moved to US$1: ZW$705.4164 from the US$1: ZW$671.4466 that was set at the previous auction conducted on 13 December 2022.
Zimbabwe’s domestic currency stabilised for several weeks towards the end of last year after government announced a cocktail of measures such as cracking the whip on its contractors whom it accused of driving parallel market foreign exchange deals.
The central bank also hiked interest rates to 200% to discourage borrowing for speculative purposes. But with stakes high ahead of the polls, experts and critics say fiscal spending will drive money supply growth resulting in the weakening of the local unit. The dollar which closed the year around US$1: ZW$800 on the parallel market is now trading at up to US$1:ZW$1200.
Tinashe Murapata, founder of Leon Africa, said fresh liquidity into the market is piling pressure on the local dollar.
“2023 will see three currencies becoming dominate. USD cash, Nostro and ZWL. Within days of the new year ZWL depreciated by more than 10%. Brought about by liquidity of ZWL that entered the market,” Murapata said.
“We make the distinction between liquidity and money supply. This money was always there, just not liquid. In 2023 we expect the spill-over of the unresolved issues. The ZWL will depreciate further but a new Nostro currency will develop alongside. There is the USD cash economy. Then the Nostro currency trading at 5% to Cash and ZWL.
“It is well to remember in June 2016 Cash to FCA premium rate was 2%. In 12 months it was 60%. By Nov 2017 it was 100%. This is happening again in 2023. USD TBs (Treasury Bills) are being discounted at 20-30%.”
RBZ governor John Mangudya last year said the government is staying the course with its current macro-economic stabilisation measures rooted in high interest rates.
Experts say the taming of inflation as well as the maintenance of stability over the past two months have generally shown that the greatest threat to stability is excess liquidity.