ZiG records 6,6pc gain, impresses economic observers

THE country’s local currency, the Zimbabwe Gold (ZiG), has appreciated by 6,62 percent in the first five days of this month, with the official exchange rate firming to ZiG26,9 against the US dollar as of November 5, 2024, according to the latest statistics provided by Reserve Bank of Zimbabwe (RBZ).

This upward trend marks the first appreciation of the local currency since its sharp devaluation by 43 percent on September 27, 2024, which suggests a potential shift in currency market dynamics.

The ZiG was introduced on April 5 this year, as part of several measures to stabilise the exchange rate and rein in inflation, which continued to gallop as the volatile Zimbabwe dollar struggled to inspire market confidence.

Monetary fiscal authorities have been rolling out several interventions, including maintaining tight monetary policy, raising interest rates and demanding certain taxes and tax thresholds to be paid in the domestic currency to promote its demand and wider use.

The rally has taken place amid tight local currency liquidity, which has helped maintain the stability of both the official and parallel markets.

Notably, the ZiG has strengthened for two consecutive days, closing at ZiG 27,9986 on November 4 before rising to ZiG 26,9024 per dollar a day later.

In parallel markets, where rates are typically higher, the ZiG also saw improvements, trading at ZiG 35 to the US dollar, down from ZiG40 last Thursday.

Traders in the parallel market cited a significant drop in the availability of the local currency as a critical driver of the currency’s strengthening.

“The local currency has become increasingly difficult to find. With demand high and limited supply, the ZiG is gaining on the dollar,” said one trader, who spoke on condition of anonymity.

Economists see the appreciation as a sign of positive developments within the local economy going forward, though a number of challenges remain before durable stability can be achieved.

Tinevimbo Shava, a prominent economist, remarked that the currency’s rally may be a response to tighter monetary conditions as authorities seek to restore stability in the wake of the September devaluation

“The appreciation of the ZiG is a reflection of demand and supply forces kicking in, which could be seen as a reaction to the central bank’s efforts to rein in inflation,” Shava explained.

“While this is a positive development, it is critical to maintain a balance in liquidity to prevent sudden inflationary pressures.”

Namatai Maeresera, a market analyst, echoed similar sentiments, pointing out that this demonstrated improved investor sentiment in the currency’s recent performance.

According to Maeresera, the ZiG’s gains are a welcome respite that may signal renewed confidence in the local currency.

“The current appreciation could be an indication that market participants are feeling less bearish, which bodes well for the country’s economic resilience in the face of recent monetary shocks,” he said.

However, he also cautioned that such strength might be short-lived if supply-side challenges are not addressed.

Financial markets and banking professionals agree that tight local currency liquidity in the market circulation has likely contributed to the rally.

Banker, Raymond Madziva, highlighted how the ZiG’s demand has grown in recent weeks, pushing it higher against the dollar.

“The market is responding to the limited availability of the local currency.

However, it is important to note that the same situation is true for foreign currency, which remains in high demand but scarce,” he observed.

Madziva warned that the supply constraints regarding access to foreign currency could drive parallel market rates up once again if the availability does not improve.

Looking ahead, analysts emphasised that sustaining the currency’s appreciation will likely depend on continued liquidity management and steps to increase foreign currency reserves.

The local central bank’s policies in the coming weeks will be critical in determining whether the ZiG’s recent gains are temporary or signal a more lasting recovery.
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