Zimbabwe News and Internet Radio

Foreign currency rates soar in Zimbabwe

File picture of forex dealers in Zimbabwe
File picture of forex dealers in Zimbabwe

On October 1, a post by Premier Alternative Market Tracker in Zimbabwe, Zim Bollar Index indicated that exchange rates for bond to USD was at 106 percent, RTGS to USD was at 130 percent, RTGS to bond at seven percent and Old Mutual Implied Rate (OMIR) at 147 percent.

Yesterday, the same post by Premier Alternative Market Tracker in Zimbabwe indicated that bond to USD has reached 180 percent with US$1 equal to Bond $2,80. The Index stated that RTGS to USD has reached 200 percent with a $1 being equal to RTGS $3.

RTGS to Bond currently stands at eight percent with $1 equating to RTGS $1,08 while RTGS to bond is at seven percent. Old Mutual Implied Rate (OMIR) has increased to 213 percent.

Bond to South African rand has risen to 23 percent from last week’s 15 percent while the Pula is at 22 percent up from 13 percent.

Economists told the Daily News that the soaring of rates indicate policy misfiring.

“The rates have gone ballistic. It’s bizarre how fast things change and all because of confidence crisis in the economy arising mainly from policy misfiring.

“The driver to the foreign currency premiums is rent seeking arising from separation of FCA RTGS accounts from FCA Nostro which has been viewed as a devaluation of the RTGS value.

“This is an unnecessary cost to business and should be reversed,” Denford Mutashu an economist said.

Mutashu said the shortage of foreign currency has also contributed to rates soaring.

“The high increase in exchange rates are indicative of shortage of foreign currency via formal system and the economic revival efforts are under threat from these shortages.

More companies that Import raw materials and goods that are not manufactured locally are facing serious hurdles in accessing foreign currency,” he said.

Economist Simbarashe Gwenzi said the two percent transaction tax is partly contributory to the price hikes of commodities.

“The supply side of the economy is transferring the tax burden to the end consumer.

“However, in terms of the parallel exchange rates it doesn’t necessarily relate.

“The parallel exchange rates are determined by speculative behaviour of consumers of forex and also industry’s demand for imports in relation to the forex allocation queue at the Reserve Bank.

“Basic economic principles state that a rise in demand leads to a rise in prices, ceteris paribus,” he said.

He said the current spike in demand, however, is a demand shock induced as response to the monetary and fiscal policy statements issued on October 1.

“The price hikes are then induced by retailers and manufacturers indexing their prices to the parallel market rates.

“Therefore, in essence there’s a vicious cycle perpetuated by speculative behaviour, panic buying and a passing on of the two percent transactional tax,” he said. Daily News.