25 February 2019

Zimbabwe: 'Rtgs/Usd Rate to Settle At 1 - 2,5'

STOCKBROKING firm, IH Securities, believes the scrapping of the 1:1 exchange rate by Reserve Bank of Zimbabwe (RBZ) Governor Dr John Mangudya in last week's 2019 Monetary Policy Statement, is revolutionary and would improve competitiveness in the local market.

In its macro-economic update released last Friday, IH Securities said it expects the foreign currency exchange rate to be volatile in short-term, before stabilising at around 1:2,5 (bond or RTGS dollar to the US dollar).

The Monetary Policy Statement has already won numerous admirers particularly among businesspeople, who feel the introduction of inter-bank foreign currency trade was long overdue.

Said IH Securities: "Shifting away from the 1:1 fallacy is a positive step towards improving competitiveness within the domestic market and sanitizing the foreign exchange market as it moves to eradicate the parallel market 'noise' and discover a rate based on more transparent demand and supply market forces.

"We expect the rates to be volatile in the short-term as market forces try to discover the true rate, which we believe will settle around the IH implied rate of 2,5."

Economic commentator Langton Mabhanga told The Herald Business last Friday that the Monetary Policy Statement addressed the inconsistencies that existed between the USD, bond notes and the RTGS system in its previous format.

"The bond to USD inconsistencies were addressed and the introduction of a Statutory Instrument to ensure RTGS currency as the main medium of local trade will go a long way in eliminating multi-tier pricing, curb price gouging and skimming.

"Such stability will help curb inflation. The 80 percent forex retention for tobacco and cotton will spur increased productivity, expansionist growth and exponential development and growth of rural economies.

"This is consistent with President (Emmerson) Mnangagwa's vision of steering the development and modernisation of rural economies as a critical commanding height in attaining Vision 2030," said Mr Mabhanga.

He said overall, Monetary Policy Statement consolidates the confidence building initiatives that will make Zimbabwe's transactional diplomacy and investment promotion much more fluid and attractive.

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