Breaking News

Zimbabwe financial markets serene after RBZ's monetary policy measures

by Staff reporter
22 February 2019 | 2029 Views
MARKETS largely remained unperturbed following monetary policy measures announced this week that saw the central bank abandon its fixed exchange rate management system for a managed floating approach to address underlying currency volatility and inflationary pressures in the economy.

The new managed floating exchange rate system will see the RTGS dollar — a mix of electronic balances, bond notes and coins — being traded in the inter-bank market.
In a managed floating exchange rate system, a central bank intervenes to stabilise a country's currency.

Rates on the parallel market were unchanged yesterday with traders quoting a rate of around US$1:4 $RTGS.

The stock market was closed owing to the holiday yesterday, but analysts say they have to monitor trades on the interbank market.

However, alternative market traders were at work, buying and selling money at between US$1:$rtgs3,8 and US$1:$rtgs4.

Central bank chief John Mangudya on Wednesday moved to stem currency volatility and inflationary pressures in the economy, emanating from valuation distortions between the electronic balances and the US dollars.

The central bank boss said interest rates would be determined after an exchange rate between the RTGS dollar and greenback has been established.

"The establishment of an exchange rate between the US dollar and the RTGS dollar is the first phase. When we have a benchmark rate, then we will move to establish an interest rate," Mangudya told businessdigest after his policy presentation.

Lending rates were set at 18% more than two years ago when the country was enjoying low inflation.

Annual inflation last month rose to 56,9%, the highest record in a decade, but Mangudya says the rise in prices is fuelled by the exchange rate premium on the parallel market that he has set out to shut down.

Ashok Chakravarti, an economist, sees the parallel market crumbling over time.

"The parallel market will collapse over time," he said after the MPS presentation.

"Don't forget the parallel market consists of small trades. This interbank market is going to have US$4 billion. That is substantial volume. No parallel market can compare to that. If you put volumes like that and the lines of credit that the Reserve Bank will need to back the market, the exchange rate will decline and the parallel market will disappear."

Economists say an interest rate hike is inevitable.

Godfrey Kanyenze said Mangudya would have to raise interest rates.




"I think Mangudya was very explicit about using all the available monetary policy tools at his disposal. There is therefore scope to raise rates in light of rising inflation," he said.

Mangudya, who introduced bond notes in 2016 on the basis the surrogate currency had a par value to the US dollar, acknowledges the need for a new exchange rate between the two units.

"The economy took a different course of direction from a positive economic trajectory to an inflationary environment. This situation needs immediate redress in order to restore value for money. The foreign exchange premiums on the parallel market which ranged from 1,40 to 1,80 to the US dollar in September 2018 increased to the current levels of between 3,00 to 4,00," he said. "This movement in forex premiums has had negative pass-through effects on inflation, which increased, particularly from the September year-on-year level of 5,4% to 20,9% in October and closed the year at 42,09%."

Kanyenze said the central bank had responded to market dynamics in a state of flux. "The float is what the market wanted," he said.

"The challenge right now is that government and the central bank in particular have always argued that they cannot introduce a new currency and until they rein in all the fundamentals."

Kanyenze said government had opted for an easy way out of the currency crisis.

"They could not redollarise and they have now chosen the easy way of introducing a new currency," he said. "Do we have sufficient reserves of forex? It's a demand and supply issue. He (Mangudya) says we have lines of credit, but he should show us the colour of the lines of credit. Apart from lines of credit, do we have reserves?"

The distrust around the local currency is expected to play against the unit.

"We are likely going to see huge demand for strong currencies. There will be demand for good money, not bad money," Kanyenze said.

However, Colls Ndlovu, a former South African Reserve Bank economic analyst, said government did the same thing in 2008 in the midst of hyperinflation and it failed.

"Just in case folks out there start jumping up and down ululating and eulogising at the forex trading liberalisation policy announced by the RBZ, a cursory look at the country's recent monetary history shows that this very policy failed miserably in May 2008 leading to the complete and contemptuous demonitisation of the defunct Zim dollar whose value depreciated to absolute zero," Ndlovu said.

"Against the backdrop of the foregoing, the question which arises is: why did that forex liberalisation policy fail so dismally? The answer is that it failed so miserably simply because (as usual) the RBZ does not want to solve the real problem savaging the Zim economy.

"The real problem of the economy has nothing to do with production in isolation. It has everything to do with the country's monetary policy and currency, over and above many other issues. The RBZ does not want to restore credibility and trust to the currency. Lenin once said that the best way to destroy a country's economy is to debauch that country's currency.

"The local Zimbabwean quasi-currencies were long debauched. Right now the new policy of marinating a rotten chicken (bond note) and offering it as a new cuisine (RTGS$) is a classic example of the RBZ's complete incapacity to solve the currency crisis. Money works on the basis of trust and confidence given by the markets (consumers, buyers and sellers), not official shenanigans."

Zimbabwe Markets RBZ

Source: the independent

Comments

Latest News

Rocks from mountain crush huts in Zimbabwe

by City Press | 24 March 2019 | 2311 Views

'Tax reforms to rescue debt-distressed Zimbabwe'

by Staff reporter | 24 March 2019 | 670 Views

Afreximbank grants Zimbabwe interbank forex trade loan

by Staff reporter | 24 March 2019 | 752 Views

Zimbabwe volcano fears - The Civil Protection Department (CPD) in Masv...

by Staff reporter | 24 March 2019 | 2898 Views

Mnangagwa goes Biblical: 'Zimbabwe accepts will of God'

by Staff reporter | 24 March 2019 | 1061 Views

Open letter to President Mnangagwa

by Viniel Deredza | 24 March 2019 | 887 Views

Warriors ease into Afcon finals

by SuperSport | 24 March 2019 | 572 Views

Rights Commission finalising probe into Zimbabwe army crackdown - THE ...

by Staff reporter | 24 March 2019 | 159 Views

3 lawyers banned from practising - THREE lawyers have been banned from...

by Staff reporter | 24 March 2019 | 606 Views

Jabulani Sibanda to bounce back?

by Staff reporter | 24 March 2019 | 934 Views

Questions over Mnangagwa's choice of advisors - ON three occasions, Pr...

by Staff reporter | 24 March 2019 | 248 Views

Potraz board okays tariff increases

by Staff reporter | 24 March 2019 | 218 Views

Horror Cyclone destruction trail unravels - THE human toll of Cyclone ...

by Staff reporter | 24 March 2019 | 140 Views

LIVE: Zimbabwe vs Congo Brazzaville

by Staff reporter | 24 March 2019 | 3502 Views

Zimbabwe debt should be audited - ZIMBABWE should not rush to pay its ...

by John Kachembere | 24 March 2019 | 812 Views

Zimbabwean couple hijacked in Durban, wife missing since Monday - A Zi...

by Staff reporter | 24 March 2019 | 3742 Views

Mnangagwa's days numbered

by Staff repo | 24 March 2019 | 8060 Views

Zimbabwean man dies during sex with SA mistress - A  67- year-old...

by Staff reporter | 24 March 2019 | 3630 Views

Zimbabwean company donates laptops to needy SA varsity students - Zoro...

by African News Agency (ANA) | 24 March 2019 | 1039 Views

Gweru prophet sets up school of spiritual gifts - Gweru-born Prophet G...

by Staff reporter | 24 March 2019 | 489 Views

Potraz brings toll free platforms to rural folk

by Staff reporter | 24 March 2019 | 162 Views

Mnangagwa pledges support for Gukurahundi victims

by Staff reporter | 24 March 2019 | 414 Views

Zimbabwe banks must support the interbank trading - THE interbank mark...

by Andrew Lampard | 24 March 2019 | 262 Views

Robbing the poor in the name of patriotism - The post-Robert Mugabe ad...

by Tawanda Majoni | 24 March 2019 | 223 Views

'Using Air Zimbabwe will pose logistical problems for Mnangagwa' - Dep...

by Staff reporter | 24 March 2019 | 419 Views

Entertainment

Andy Muridzo promises new album

by Simbarashe Sithole | 18 March 2019 | 308 Views

Kwejani band is back! - AFTER an eight-year hiatus, Victoria Falls' su...

by Staff reporter | 13 March 2019 | 1189 Views

Moyo revives Pantsula genre

by Staff reporter | 10 March 2019 | 464 Views

Majaivana's sad farewell

by Bruce Ndlovu | 10 March 2019 | 6757 Views

Nceku shifts base to SA

by Staff reporter | 09 March 2019 | 827 Views

Baba Harare abandoned by band members - Jit musician, Baba Harare has ...

by Staff reporter | 04 March 2019 | 2050 Views

Winky D pays the price

by Staff reporter | 03 March 2019 | 5517 Views