Zimdollar to depreciate on liquidity growth — IH Securities

SECURITIES firm, IH Securities, says there was a “marked” growth in the ZWL liquidity in the market last month, triggering the continued depreciation of the local currency.

With the local currency having lost over 700% of its value from the start of the year to date, the local currency was yesterday trading at US$1:ZWL$5 591,96 on the official foreign currency market.

The rapid depreciation of the local currency is due to the growth of money supply, which reached ZWL$14,27 trillion by June, an increase of over 500% from the end of last year.

When money supply grows with no concurrent growth in the economy, as has been the case in Zimbabwe, the currency becomes inflationary.

In its September 2023 Monthly report, IH Securities said that it predicted that this increase in the money supply last month would pressure the local currency further.

“In its September meeting, the MPC [Monetary Policy Committee] noted that monetary and financial conditions were conducive to sustaining prevailing stability and resolved to maintain a tight monetary policy stance by maintaining prevailing bank policy rates and standardising statutory reserve requirements,” IH Securities said.

“Nevertheless, there was a marked growth in ZWL liquidity in the market, and we expect this upward trend to continue into the final quarter of the year, exerting persistent pressure on the exchange rates.”

The pressure on government to raise the money supply even further will be seen in the upcoming 2024 national budget wherein the authorities are expected to account its expenditure at current exchange rates.

Already, the central bank is under pressure to print higher denominated notes as the market is rejecting the ZWL$50 note, owing to the inconvenience of moving around with wads of cash.

“The MPC resolved to maintain the tight monetary policy stance by maintaining the bank policy rate at 150% per annum with the medium-term accommodation facility at 75% and standardising statutory reserve requirements for both foreign and local currency deposits at 15% and 5% for savings and time deposits,” IH Securities said.

“The central bank stated it will expedite the introduction of Zimbabwe Gold as an additional payment method alongside existing payment platforms.”-newsday