The exchange for the Zimbabwean dollar against the US dollar has continued an upward trend in both domestic markets. The interbank market rate edged towards 11 recording ZWL$10.83 while the parallel market rate was recorded at ZWL$12.50. The picture over the last two months show that while efforts from the finance ministry and Reserve Bank of Zimbabwe initially slowed down the currency decline with rates even holding steady for a whole two weeks we are certainly back to business as usual. Over the last 30 days the Zimbabwean dollar has lost 15% in both markets.
The gap between the two markets had been steadily closing over the last few months going from 1.42 in early August and closing the month of August under 1. However a recent spike in the parallel market rate brought the difference back to 1.67. Time will reveal if the spike is temporary and whether or not there will be a corresponding movement in the interbank market. The parallel market still represents the most open market as participants can easily buy and sell on it. While the authorities have made changes to the rules of foreign curchang, in practice the interbank market is still a sell only market.
Year to date (from February 22nd) the Zimbabwean dollar has slipped 77% in the interbank market while shedding 66% in the parallel market in the same period. Unfortunately, the price inflation situation which the Minister of Finance Professor Mthuli Ncube sought to contain via the exchange rate has not improved and the Ministry has since stopped publishing inflation figures for year on year opting to only release month on month.
With the nation still dependent on imports and importing power in addition to the usual imports the exchange rate situation will certainly be worrying, if it wasnt already. Civil servants recently agreed to a wage increase deal which was effected immediately and the month of August and perhaps the greater number of Zimbabwean dollars in their hands looking to the parallel market to buy US dollars can explain the parallel market rate spike. The IMF warned the government of Zimbabwe of the possible inflationary pressure the wage increment would bring, however workers were severely incapacitated earning what had become as little as US$30 per month. The rate spike will also mean that civil servants likely experienced a decline in the purchasing power of their salaries before they could even spend them.
When the interbank market was opened up the resounding consensus was that what Zimbabwe needed was not necessarily a low exchange rate but rather a steady one. Well as the days have rolled on it is fairly evident Zimbabweans will get neither a low nor steady rate without further intervention.