Trust issues torment Zimdollar
LEADING securities firm FBC Securities says confidence in the local currency remains low due to past experiences of volatility and value loss.
Zimbabwe has, in the past, been plagued by scenarios of a sharply depreciating currency due to high inflation, notably in 2008 and 2019, when savings and incomes were decimated.
Lack of confidence in a currency has been cited as the underlying cause of exchange rate instability, capital flight and unsustainable inflation.
“Promoting wider use of the local currency has been challenging as economic agents continue to favour the US dollar (US$) for transacting and value preservation,” FB Securities said in its third quarter report.
“While exchange rate stability has been achieved to an extent, and official inflation figures continue to trend downwards, confidence in the local currency remains low due to past experiences of volatility and value loss.”
The firm said stability of the local currency remains fragile, hinged primarily on the government’s ability to continue to control money supply, foster confidence and encourage use of the local currency.
A mixture of measures to help increase the supply of foreign currency, while simultaneously reducing demand for the US$ and increasing demand for local currency should also alleviate pressure on the local currency, it noted.
The greenback remains a dominant feature in the local economic space as the dollarisation trend continues. Foreign currency denominated loans constitute circa 90% of total bank loans, while over 80% of local transactions are in US$.
Authorities have, however, maintained their position on promoting the use of local currency and have, over the last few years, put measures in place to promote the Zimbabwe dollar and anchor inflation and exchange rate pressures.
In the outlook, FBC Securities said focus is likely to centre on the future of the country’s currency.
Annual inflation slowed down significantly following the adoption of an inflation calculation method which captures the dominance of US$ transactions locally.
Annual inflation fell to 18,4% in September compared to 77% in August. Month-on-month inflation moved to 1% in September. Authorities expect month-on-month inflation to continue to moderate in the second half of the year to levels of below 3%. Annual inflation is also expected to continue to decline by year end by between 60% and 70%.
FBC Securities said pressure on the local currency remained elevated, particularly as the second half of the year generally coincides with high fiscal spending to support the main summer agricultural cropping season and bonus season.
Meanwhile, the securities firm said the stock market’s performance was likely to continue to be impacted by local liquidity conditions and value preservation concerns given existing currency dynamics.
“We expect the appetite for alternative investments to continue to grow as investors continually assess local economic conditions,” it said.-newsday
