HomeBusiness DigestEmbattled currency to hit $16 000 per US dollar

Embattled currency to hit $16 000 per US dollar

Dumisani Ndlela

ECONOMIC research and consultancy firm Techfin Research has forecast Zimbabwe’s embattled domestic currency’s fair value by year end at $814,

15 to the US dollar, against $250 to the greenback fixed by the central bank in August.

The frail currency would reach a fair value of $1 058,39 to the US unit at the start of 2007 and end the year at a fair value rate of $16 588,73 to the US dollar, the research firm’s computations obtained by businessdigest this week indicated.

The projections support gloomy forecasts made by the International Monetary Fund (IMF) suggesting Zimbabwe’s economic crisis in likely to accelerate at an unprecedented rate next year.

The IMF expects inflation to average 1 216% this year and a record 4 278,8% next year, with real gross domestic product (GDP) contracting by 5,1% and 4,7% in 2006 and 2007 respectively.

Zimbabwe has experienced a cumulative GDP decline of 30% between 1999 and 2005.

Year-on-year inflation as measured by the all items Consumer Price Index fell by 181,3 percentage points to 1023,3% in September 2006 from a record high of 1204,6% touched in August.

Reserve Bank governor Gideon Gono devalued the local currency on the official interbank market to 250 against in greenback in July from $101 to the US unit and suggested that an Exchange Rate Impact Assessment Board (ERIAB) would be established to review Zimbabwe’s currency value periodically in line with economic fundamentals.

Gono re-introduced the interbank system, which has had several adjustments meant to curtail market-determined exchange rates, in October last year after experimenting with the auction system which it adopted in January 2004.

The auction system was meant to restore stability in the foreign exchange market which has been overtaken by the parallel market.

While the exchange rate on the auction system was allowed to adjust periodically, critics said it had been of little benefit to exporters because the adjustments were not realistic and did not allow exporters to break even.

In a mini review of monetary policy on October 9, Gono skirted the issue of the establishment of the ERIAB and left the exchange rate unchanged at $250/$1.

“We believe that it’s necessary for the exchange rate to be adjusted regularly in line with the inflation developments in order to keep exports viable,” Techfin Research said in its weekly report to professional investors.

The company said it expected the exchange rate to remain unchanged until the next policy review.

This is likely to be in December soon after the budget proposals for 2007.

Techfin Research said it expected Gono to devalue the local unit to $1 000 against the US dollar on the official market and that the official rate should be adjusted gradually during the year to end at $5 200/$1 by December 2007.

The domestic currency is currently trading at $1 500 to the US dollar on a thriving parallel market.

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