Zimbabwean dollar will remain under pressure on the parallel market due to the unresolved foreign currency backlog on the auction market and growth in money supply, latest report shows.
On the black market the local currency is trading at around ZWL$180x per US dollar while the official rate is ZWL$99.93. Analysts say its recent drop in value has fueled inflation, with businesses raising prices to hedge against currency volatility.
Reserve money, which refers to currency in circulation plus commercial banks deposits with the central bank, rose 16.05% to ZW$28.27 billion as of the week ending 5 November 2021 from ZW$ 24.36 billion in the previous week, the central bank has said.
“There is a need for authorities to review the mechanics of the auction market to allow market forces to play a major role in determining the exchange rate while containing money supply within optimum levels,” said Old Mutual Investment Group (OMIGZIM) in its latest monthly report.
The apex committed to refine the weekly foreign-exchange auction and settle foreign currency allotments within two weeks from the date of the auction. The auction system has been battling a 10-week settlement backlog and generalized exchange rate overvaluation concerns, according to OMIGZIM.
“Otherwise, pressure on the ZWL is expected to remain unabated.”
OMIGZIM revealed that a tight monetary policy stance will withdraw additional liquidity from the market.
“However, the efficacy of monetary policy prescriptions in a dollarized and highly informalised economy is greatly compromised,” it said.
Bank policy rate was raised from 40% p.a. to 60% p.a. and the Medium-Term Bank Accommodation (MBA) Facility interest rate from 30% p.a. to 40% p.a. to increase the cost of money and discourage speculative borrowing.
Statutory reserve requirements for demand and call deposits were increased from 5% to 10%, while deposit interest rates for Zimbabwe dollar denominated savings and time deposits were reviewed upwards from 5% and 10% p.a. to 7.5% and 20% p.a. respectively.
Authorities also reduced the quarterly reserve money supply growth target from 20% to 10%.
“The policy prescriptions, while necessary to curb money supply growth, are likely to increase the cost of funding and limit the amount of credit available for the productive sectors of the economy.
“The proposed deposit interest rates are seemingly misaligned with current inflation trends and confidence levels in the local currency,” it said.
Meanwhile, the stock market opened the week lower on losses in select heavyweight stocks and mid-tier caps as currency debate continues. In most of the trading updates published so far companies have expressed concern about the widening gap between the black market and official rate.
At the close of trades, turnover improved to ZWL$513.76 million mainly coming from Simbisa at ZWL$327.37 million and Delta ZWL$105.72 million. Total trades amounted to 361.
The mainstream All Share Index lost 0.53% to 12,376.10 points. The ZSE Top Ten Index retreated 0.91% to 8,038.50 points after losses in Meikles and CBZ.
Meikles was down 9.84% to ZWL$220.0000. Banking counter CBZ lost 3% to ZWL$96.9560. The Board has proposed the declaration of a final dividend of $500 000 000 or 95.78 cents per share. This declaration translates to a growth of 42.8% on the comparative 2020 interim dividend.
Bucking the trend, retailer OK Zimbabwe gained 3.22% to ZWL$29.9383 taking its year to date to 233.65%.
The Medium Cap Index recovered 0.47% to 21,779.39 points. Turnall was the best performer after gaining 10% to ZWL$5.5000. FML was up 8.67% to ZWL$25.0000. FBC rose 6.25% to ZWL$34.0000 on the back of an after tax profit of ZWL$2.04 billion for the 9 months ended 30 September 2021.
Mid-tier stock NMBZ was however the worst performer losing 14.29% to ZWL$12.0000. Mash Holdings plunged 4.61% to ZWL$4.0063. Zimplow eased 3.60% to ZWL$26.0000. But, its third quarter revenues and profitability rose 45% and 61% in real terms when compared to the same period last year.
The Small Cap Index lost 0.22% to 397,450.47 points.
There however gains in penny stock Medtech which added 3.95% to ZWL$0.1896.
Foreign buyers outpaced sellers at ZWL$22.4 million vs. ZWL$8.94 million – Harare