ACTIVITY on the interbank market slowed down in the week under review coming off record high levels attained in the prior week.
This, however, did not deter the exchange rate to fall further, a trend it has maintained since the beginning of the year.
This week, the weighted average exchange rate slipped past the 1:86 mark after trading in the 85’s range for 12 straight weeks.
It took the Zimdollar almost a similar length of time to move between 84 and 85. These emerging trends shows that the Zimdollar depreciation rate has become more predictable on the interbank heightening worries over its manipulation by monetary authorities.
A bit of technical analysis shows that the top bid levels have lately been fluctuating, curtailing a trend since June, over which it was stable at 90.
The fluctuating top bid, shows that there is less predictability of the rate and hence buyers increasing their odds of getting supply, by bidding higher.
In the week the top bid fell from 95 to 92. A top bid of 95, which is the highest on record, coincides with last week’s biggest auction on record, in value terms.
The lower bid moved a bit up again in the week under review, to its highest level on record.
Generally, a tightening spread (difference between top and lower bid) represents a market moving towards stability.
However, the trend has to be consistent and sustained over time.
Cumulatively the weighted average exchange rate has lost 5.07% since the beginning of the year.
While some currencies, such the ZAR has lost ground on a cumulative year to date basis, against the US dollar, or the Zambian Kwacha, touted as recent darling for investors, has gained against the US dollar, over the same period, their path to these outcomes has been different from the Zimdollar.
The performance of the Zimdollar has been slope sided, trending downwards on a gradual basis in a very predictable manner, this is despite shifting fundamentals.
Currency typically respond rapidly to tilting fundamentals than any other asset class.
For example the Zambian kwacha, lost 6% against the US dollar on a year to date scale as at July, before , flipping the trend to a 33% year to date gain as at August, following HH’s election.
The rand has swung back and forth and is currently closing the loss gap incurred earlier, a typical market phenomena. For Zimbabwe, it has been one way and even as the one way trend is very predictable.
This side and rate of depreciation would not have been of concern if there real market stability prevailed on the respective market.
The market remains fraught with blemishes and these have even gone beyond just blemishes, to real setbacks.
A huge backlog now trimmed to below US$200 million prevails. What this essentially means is that funds traded are taking longer than usual to clear.
It would typically take up to two weeks for foreign funds to settle, but with the current jam the settlement time has increased to above a month and in some instances, to uncertain periods.
This lag creates a challenge of time value of money, which in essence forms the basis for pricing of money (interest rate).
A dollar which clears in a day, is not equivalent to a dollar which clears a week later. it effectively gives room for alternative markets and gives rise to the parallel market.
It equally inflates the country risk on matters of debt, which would also push the cost of money up. This would also alter credit terms at which local companies are advanced stock on credit.
It is this gap that breeds hyper parallel exchange and further speculative bets in the economy such as on the ZSE.
If the market was based on a simple principle of free market it would denote that only that which is earned and readily on the books of sellers would be sold.
It is also naïve to believe that private players such as Zimplats, would seek to sell that which it does not have on its books already.
It therefore leaves us with only one player, with an interest to protect, the Central Bank, whose key mandate is to stabilise prices.
The RBZ is the biggest supplier of forex by virtue of surrender portions and other government income.
The Bank has thus used this muscle to provide a fragile stability for the currency, sometimes going all the way to sell that which does not have on the premises of expected cashflow, which is a fraught concept in the currency market.
These revelations are telling and very worrying as they clearly show that the stability the interbank market has enjoyed has been borrowed and anchored on non-fundamentally driven mechanics.
The Bank has been in over-drive highlighting that the overall nostro position of the country is improving, which is very correct, but the challenge with Zimbabwe has never been about forex generation, but allocation.
Those that generate forex have no confidence with the Bank and thus, as much as they can, prefer to hold on to hard currency.
The hazards of new money creation by the Bank and unbridled government expenditure, particularly in periods towards elections are worrying historical trends that inform risk aversion and a conservative approach in dealing with the RBZ.
The present interbank form presents room for serious arbitrage, which some have been taking advantage of. A simple example is with bureaux.
Three months ago, one would walk into a bureaux and purchase travel funds at the interbank rate, without being subjected to a waiting list.
As of today all bureaux de change entities are invoking a sometimes two weeks long waiting list, despite them getting weekly allocations.
What has changed. It is the number of flights outside Zimbabwe? That cannot be true given the lockdown situation and the rather diminishing number of flights.
A study shows that the syndicates within bureaux are creating fake medical and travel documents across a wider network.
Passports of non-travellers are pulled and stamped in exchange of US$50. The cycle goes on. The current situation in Zimbabwe is untenable, nomatter how much we try to sanitise it.
The SDR allocation will not help rout out the challenges, but will only again give life to the notion of fragile stability, which does not pay any attention to the fundamental flaws of the economy.
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