More troubles as Zimbabwean dollar inches closer to ZWD130/US$1

 More troubles as Zimbabwean dollar inches closer to ZWD130/US$1

News update.

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The Zimbabwean dollar depreciated against the US dollar to close at ZWD130/US$1 at the black market as month on month inflation continues to increase.

Zimbabwe’s currency weakened against the dollar by 1.0817 percent, breaking its six months stability.  Zimbabwe Dollar has remained at 83.7373 /$1 as of Tuesday at auction exchange rate.

The Zimbabwean dollar depreciation has been attributed to strong demand amid a shortage of US dollars on the market.

At Foreign Exchange Auction window of the foreign exchange, where forex is officially traded, Zimbabwe dollar also depreciated marginally by 0.08 percent as dollar was quoted at 83.7573 as of 16 February 2020 compared to 82.6756 quoted on the previous month day.

Meanwhile Reserve Bank of Zimbabwe Governor John Mangudya   raised overnight lending rate to 40% from 35% in a monetary policy issued on 18 February 2021, to ensure that inflation is under control and that the foreign exchange auction system is sustained to support the growth of the economy.

Policymakers said that a new wave of the Covid-19 pandemic and its adverse impact on the economy are a cause for concern. Still, the central bank remains optimistic that the expected economic growth of 7.4% in 2021 is achievable while it projects annual inflation to close the year at below 10%.

The measured optimism is based on the expected significant growth of the agricultural output in 2021, as a result of the good rainy season, fiscal sustainability and the Bank’s focus on price and financial system stability.

‘Increasing the Bank policy rate for overnight accommodation from the current 35% to 40% per annum and the medium-term lending rate for the productive sector lending from 25% to 30% per annum.

‘The decision on interest rates considers the current liquidity conditions in the market and the need to continue controlling speculative borrowing.

‘Increasing statutory reserves from 2.5% to 5% for demand and/or call deposits and maintaining 2.5% for time deposits. The differentiation of statutory reserves by maturity is expected to incentivise banks to hold long-term liabilities or time deposits which will facilitate long-term lending in the medium-term.

‘Maintaining the conservative monetary targeting framework in 2021, this will be achieved by reducing the quarterly reserve money growth from the 25% quarterly target in 2020 to 22.5% per quarter in 2021.

‘The current stability in inflation and exchange rate needs to be safeguarded, maintained and sustained. The reserve money target of 22.5% is consistent with the targeted end of year inflation of below 10% and the projected 7.4% economic growth rate of the economy.’’ he said

CPI inflation rate ended the year at below 5% as desired by monetary policy, resulting in annual inflation closing the year 2020 at 348.6%, slightly above the forecasted 300%.

The CPI month on-month inflation for January 2021, however, slightly increased to 5.4% from 4.2% in December 2020, which saw year-on-year inflation rising moderately to 362.6% in January 2021, from 348.6% in December 2020.

The increase in inflation in January 2021 largely reflected the adjustments in administrative levies and charges that include electricity, municipal charges, rates and health charges, some of which are traditionally affected at the beginning of the year.

The January 2021 inflation outturn was also influenced by the increase in international commodity prices for maize, wheat, fuel, crude soya oil, among others. The blended inflation, however, remained low at an average of 2 percent since August 2020.

The blended year-on-year inflation stood at 188.9 percent in December 2020, better than the 250 percent projected in the August 2020 Monetary Policy Statement. The blended annual inflation, however, marginally increased to 191.5 percent in January 2021, as a result of increases in prices as explained above. Overall, both headline and blended inflation are expected to progressively decline in 2021.

Chris Louw

Featured Financial Writer for SA Shares - Read more about Chris's Bio -

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