Ceteris Paribus:Respect Gwenzi
IN its 19th week of trading on the revamped interbank market, the Zimbabwean dollar (ZWL) marginally eased against the United States dollar amid sustained strong hard currency demand.
On easing by a marginal 0,004%, the local currency stretched its losing streak to two straight weeks. The cumulative loss over the two week period is, however, very negligible at 0,01%. The last time the local unit was falling, it was losing an average of 4% per auction session (weekly), that is, over the 10 week period between June 23 and August 25 of the current year. A slowdown in the rate of ZWL depreciation to the US dollar comes after seven weeks of positive performance in favour of the former. The ZWL added 2,5% in seven trading sessions preceding the last two weeks curtailing a freefalling trend spanning 10 straight weeks.
The growth in demand has interestingly been matched by a growth in supply. The levels of bids satisfied (supply) to total bids (demand) has been at 100% for almost nine weeks. This means almost all the forex demanded has been matched with sufficient supply.
The RBZ said the supply has been mainly sourced from exporters and matched directly through the auction. The RBZ has, on its part, participated on either side using the surrender window and its role as the central bank to moderate and cushion trades.
In the past, the RBZ used to also rely on import facilities sourced from International Financial Institutions to cushion forex shortages and spikes in demand, in the absence of reserves. The Bank has not, in recent days, denied or acknowledged reliance on borrowed funding for purposes of aiding the auction system. Reliance on borrowed funding implies the market is unsustainable and the future cost to the economy higher.
Although stability has been noted, there is an evident technical pressure reflected through the adjustment in lower and upper bids. The lower bid moved up this week to a level very close to the current weighted average rate. The lower bid moved to 80 which is its highest level since June. This reflects growing pressure on the bids side.
Further to that, the top bid also moved upwards to a record high level of 89. The rising bid-spread base reflects exchange rate pressure, a signal of near term weakness. The growth in demand for forex as reflected by growth in total bids supports the earlier observation of near term exchange rate pressure. We may therefore likely see the Zimdollar easing again in the coming auction.
On the more fundamental aspects, money supply levels may remain stable through to year-end given revenue outperformance as reported by the Zimra. Latest numbers show that Zimra collected ZW$57 billion in Q3 which compares to values of around ZW$20 billion in the prior quarter. The ZW$57 billion is ZW$7 billion shy of the country’s full-year budget of ZW$64 billion. However to also imagine that government expenditure will remain unchanged to budget levels is also not wise.
There is likely to be an adjustment to expenditure given recent salary increments, allowances and other expenditures. Despite the envisaged expenditure growth ahead of budget we do not see full year expenditure going ahead of actual collections. Given these projections we do not see the government putting pressure on the Central Bank to print money beyond the expected thresholds. This scenario may likely have a stabilising effect on the exchange rate.
Gwenzi is a financial analyst and MD of Equity Axis, a financial media firm offering business intelligence, economic and equity research. — firstname.lastname@example.org.