HomeBusiness DigestDollar to fall 50% before stabilising

Dollar to fall 50% before stabilising

Godfrey Marawanyika

THE Zimbabwean dollar is initially expected to lose half its official value on the new interbank market before stabilising.

sans-serif”>Analysts say this is likely to improve foreign currency inflows slightly but also see a surge in inflation.

Reserve Bank governor, Gideon Gono, last week reintroduced the interbank trading system to determine the exchange rate for the local dollar, but exporters will still have to remit 30% of their earnings at a rate to be determined by the bank.

Under the floating rate system which replaces the auction system, the Tradable Foreign Currency System, all exporters will retain 70% of their export proceeds in foreign currency, and sell the remaining 30% at a rate determined by the RBZ from time to time.

A day after the announcement, treasury heads from commercial banks met the central bank to outline the modalities of floating but did not reach an agreement.

Last Friday, the Zimbabwean dollar was trading at between $55 000 and $60 000 to the greenback on the interbank market. By Monday it had weakened to $95 000:US$1 in line with the black market.

Dealers said the black market would continue since official avenues would not meet the higher appetite for imports.

CZI vice-president, Calisto Jokonya, said as industry they fully supported the floating of the exchange rate.

“We as CZI are fully behind this measure (floating),” Jokonya said. “It’s something we have been advocating for sometime now,” he said.

“As CZI, our expectation is that industry will respond positively to these new measures and move away from the black market and deal with banks.”

Commenting on the expected time lag from manufacturers, Jokonya said the response from exporters would significantly vary.

“The time lag response will obviously vary from manufacturers whose products have a longer cycle and those with a shorter span.”

He said since this was the peak period for exports, there might be an immediate response, but conceded that exporters with a longer manufacturing span might take time to respond.

Analysts said with the local unit expected to weaken sharply as it seeks a market rate, inflation would head north before eventually subsiding in the first quarter of next year.

Gono said inflation, which reached 359,8% in the year to September, would ease to between 280-300% by year-end. Although the bank’s forecast is higher than the initial 50 and 80% target, analysts say it is still conservative.

Economist Eric Bloch said: “I believe we will see a fall in inflation in December this year. But this is expected to creep up again in January next year because of increases in things like school fees and rate hikes from local authorities. But there will be a steady decline as of February onwards.”

Bloch said there had been a positive response from exporters but said most importers had already made their bookings for year-end.

“There was a very positive response. It’s unfortunate that South Africa and other customers had already made their orders for year-end,” he said.

“There is going to be a time lag, but late February we should see a positive response.”

Exporters have been calling on government to create a conducive environment for foreign investment and attract balance of payment support crucial in stabilising the local currency and easing inflationary pressures.

Zimbabwe has been without donor support since 1999 after foreign lenders, led by the International Monetary Fund, withheld cash over policy differences such as the seizure of white-owned farms to resettle blacks.

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