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Marked growth in ZWL liquidity exerts pressure on exchange rates – Report


Nov 8, 2023

By ETimes

While Zimbabwean dollar liquidity increased significantly in the market, IH Securities expects this upward trend to continue, putting continuous pressure on exchange rates.

The weak local unit, known as bond notes, or ZWL, is having an impact on ordinary citizens as it depreciates in value in relation to the US dollar.

“The official rate on the auction remained relatively stable against the dollar going from US$1: $5,252.6558 at the beginning of the month and closing at US$1: $5,693.7825,” IH Securities said in its October monthly snapshot.

“Meanwhile, the parallel market rate increased by a similar margin to US$1: $7,600.00.”

Over the nine months ending in September 2023, the country’s export revenues declined by 9% to US$3.6 billion from US$4.5 billion during the same time in 2022, owing to a fall in mineral prices.

This comes as the escalating conflict has the potential to further drive up oil prices, among other things, dealing a fresh blow to both the local and global economies as the country prepares for an El Nino-induced drought.

As a result, policymakers instituted the removal of all special dispensations granted to certain economic sectors and the standardisation of foreign currency retentions on exports at a rate of 75% for all economic sectors.

“The net effect of this measure is to increase foreign exchange resources available to the bank and government to meet foreign exchange requirements for the settlement of national and international obligations,” IH Securities said.

“In our view, this inadvertently increases the ZWL burden required to liquidate the remaining 25% of foreign currency and potentially implies increased ZWL liquidity in the economy.”

Experts say maintaining price stability is critical and will depend largely on the ability to control money supply growth-HARARE

By ETimes

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