A month ago President Emmerson Mnangagwa addressed the nation and announced measures to restore confidence, presumably in the currency and the economy. Both were taking a battering at the time. ZimStat’s monthly inflation announcement placed year on year inflation at just under 100%. More importantly, the parallel market exchange rate, which is used for pricing in the informal channels of the economy had just crossed over 1:400 with no signs of abating. This marked a halving of the value of the Zimbabwean dollar versus the US dollar since the start of the year. The cocktail of measures that ranged from the strange to the questionable has done little to stop this development and sources say the parallel market exchange rate is firmly over 1:500.
The measures announced targeted bank lending, stock exchange profits and the reserve money supply growth. One of these things has been linked with the parallel market exchange rate movement for a long time. It remains to be seen if reserve money supply growth of zero is sustainable but we are yet to see the effects of it. As for other measures they haven’t quite gone to plan. The ban on bank lending lasted long enough to kill the little confidence that was left in that sector. The initial proposal of a 40% capital gains tax on stock exchange profits was altered to a more palpable 4% but not before wiping out close to 20% of stock exchange value. Not all the measures have performed so poorly, the puzzling introduction of the interbank (willing buyer, willing seller) rate for pricing was instantaneously adopted by businesses with many corners citing it is closer to reality. However, it still overvalues the Zimbabwean dollar significantly.
The parallel market rolls on
A month later the parallel market rate has moved past the 500 mark. And the spread and variations are getting wilder. An informal trader even claimed an exchange rate of 1:600 for their wares. That’s the nature of markets and you can expect outliers here and there. While in some corners business is being done at 1:450 the most frequent number we are getting is 500 with numbers ranging as high as 520. The parallel market has rolled on without a hiccup while businesses and citizens have been affected. Inflation responded accordingly with year on year inflation jumping to 131.7%. The auction meanwhile has conceded a lot of ground on its valuation of the Zimbabwean dollar. Devaluing the Zimbabwean dollar by roughly 49% in the last 30 days where the parallel market has devalued the Zimbabwean dollar by 19% according to estimates. In case you’re wondering in the year 2022 the Zimbabwean dollar has been devalued by 56% and 58% on the auction market and parallel market respectively.
What comes next?
In the Zimbabwean policy landscape, you are bound to get feelings of de Ja Vu; that feeling that you’ve been here before. And you’d be right to feel this way right now. After unleashing aggressive measures that have torn sectors of the economy apart we are no better off than we were. With the parallel market rate has crossed 500 the punters and observers will surely be taking bets and positions respectively on when we expect it to hit 1000.