Weak Response To Monetary Policy

THE stock market responded weak to the half year Monetary Policy statement on Wednesday as the benchmark index only rose 14,18% to close at 243 284 252 308 732 points from 213 065 606 668 288 points.

 

The mining index also rose marginally by 18,99% to close the day at 282 604 004 481 835 points

Market analysts however said the market will in the short term maintain a broad-based rally that drove it to historic levels as the market was offering better returns compared to other investment vehicles.

The major movers were Halogen, Border Timber, Medtech, Pelhams and Hunyani.

The least performers were Old Mutual whose share price is largely determined by the movement of the exchange rate on the parallel market.

Other companies that performed least were Natfoods, Afdis, Nicoz Diamond and Phoenix.

With 78 counters trading, which are involved in activities such as manufacturing, agriculture, mining, banking and retail, the stock market has been providing investors with returns that are in line with runaway inflation.

Momentous movements have not been experienced in the market for a while.

After making history as the world’s second best performing bourses in 2006, political events weighed heavily on the stock market early this year.

Protracted bearish spells have occasionally dragged the market’s performance below inflation.

The central bank said it was determined to assert its role as the lender of the last resort keeping key interest rates unchanged at 8 500% for secured borrowing and 9 500% for unsecured overnight accommodation, respectively.

Reserve bank governor Gideon Gono said the rates were ‘high enough to restrict banks to the interbank market for the financing of end of day cash deficits’.

However, given the market conditions in the country, interest rates can only be attractive if inflation goes down

The reserve bank has this week announced it will drop 10 zeros off its currency, turning $10 billion into $1 during a policy which drew mixed reaction from business and economic analysts.

Decidedly, business leaders felt the policy was much of a “currency reform statement” as it left untouched fundamental economic problems like inflation, money supply and production.

Shop shelves are empty and there are chronic shortages of everything almost everything including medication, food, fuel, power and water.

Eighty percent of the workforce is estimated to be unemployed and many who do have jobs do not earn enough to pay for bus fare the whole month.

Zimbabwe is suffering from the curse of hyperinflation –– extremely rapid growth in the supply of “paper” money.

Cutting zeros off is one way of trying to tame hyperinflation –– it was tried in Germany in the 1920s when people shopped with wheelbarrows full of money –– but other measures need to be introduced as well.

Germany, the most frequently cited example of hyperinflation finally got to grips with the problem when it produced a currency, the Rentenmark, backed with American gold.

In 1924, the US’ Dawes plan, named after the American banker Charles Dawes, set realistic targets for German reparation payments and gave Germany a $200 million loan.

Germany, however, did not suffer from the worst case of hyperinflation in history. That dubious honour goes to Yugoslavia in the early 1990s when it was sliding towards war and disintegration.

Yugoslavia’s inflation in 1993 reached 2% an hour, with retail prices doubling every two days.