Chamisa poll dispute pushes up forex rates

Economists expect real-time gross settlement (RTGS) and EcoCash transfers to initially gain against the United States dollar for a while once the dispute over election results is finalised, before slumping again at the end of the tobacco selling season currently underway.

Tobacco is the country's second largest source of foreign currency after gold. The selling season for the golden leaf usually draws to a close at the end of September.

Over the short-term, RTGS and EcoCash rates against the dollar are seen dropping to between 50% and 60% from current rates of between 75% and 80%.

The current spike came against a Reserve Bank of Zimbabwe announcement of an increase in forex allocations to $150 million a month from $100 million during the second week of July.

The upswing is attributed to growth in speculative behaviour, driven by foreign currency demand dynamics and delays in the formation of a new government.

MDC Alliance presidential candidate Nelson Chamisa is challenging President-elect Emmerson Mnangagwa's victory in the Constitutional Court alleging several irregularities in the poll process.

"In the run-up to elections and over the last two weeks, people were not really doing business.

"You know, we are just coming out of the elections, it's the first week since elections. Many people are waiting to see which way things are going," a prominent economist with a local bank, who preferred anonymity, said.

"But they cannot continue not to do business, so there is probably some build-up in outstanding commitments of payments that are beginning to filter into the market.
"Those tend to put short-term pressure on rates. A big corporate comes into the parallel market looking for something like $2 million for production and things like that put pressure on the market.

"It is a very sensitive market which is in short supply. What drives these short-term blimps and bumps is probably the sentimental issues."

However, he doesn't see these short-term fluctuations in demand significantly changing the fundamental exchange rate, which he pegged at between 45% and 50%, and projected a steady long-term trend.

But in the aftermath of the tobacco selling season, economists expect the rates to rise once more due to an increase in foreign exchange shortages.

"Obviously, it (parallel market rates) is created by forex shortages and clearly there is an ongoing foreign currency shortage, until we address that it won't be resolved," banker and CABS MD Simon Hammond said.

"Look, there is obviously a risk of inflation picking up again, so I think that is probably the biggest visible risk until we are able to generate enough foreign currency to meet our foreign requirements."

Economist Prosper Chitambara said he expected the black market premiums to remain high or even worsen in the short-term until the political uncertainty was resolved.

"What I think is going to happen is that, first and foremost, it is being stoked or fuelled by these uncertainties with respect to the political environment.

"Also, when you consider the disputed election results, the uncertainties around the court cases and the way forward, these would obviously affect the black market premium," he said.

"So, in the short-term, I think the exchange rate will remain very high or even worsen beyond the current 75% to 80% rate. But after clarification of all the legal processes, we will probably witness a decrease in the premiums."

Parallel market rates have been on an upward trajectory since the July 30 harmonised elections.