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Mthuli Ncube's RTGS $ under siege

by Staff reporter
07 Apr 2019 at 12:43hrs | Views
ZIMBABWE's local currency, the RTGS dollar, has shed more than 20 percent of its value since its introduction as the availability of foreign currency on the formal market remains subdued.

By Friday last week, the RTGS dollar had weakened to RTGS$ 3.0120 against the United States dollar, a 20 percent drop.

Analysts attribute the continued slide of the local currency to the limited availability of foreign currency on the formal market, with export earners expecting it to weaken further.

"There is a feeling in the market that the formal market rate is being managed by the central bank, so export earners are reluctant to sell. But now that the rate has weakened further, we expect the market to be liquid going forward," said Walter Mandeya of Trigrams Investments.

Late in February, Zimbabwe introduced a new currency called the RTGS, or real-time gross settlement dollar, in the process abandoning its long-held 1:1 parity between the US dollar and its local transactional instrument - the bond note.

The introduction of the new currency was also accompanied by the introduction of a market-based foreign exchange market, where the value of the local currency against other global currencies would be determined by market forces, through what is called an interbank market.

At the start, the Reserve Bank of Zimbabwe put an official rate of RTGS$2.5:US$1. This has since devalued to current levels.

The official exchange rate is however 40 percent lower than what is prevailing on the parallel market, where the RTGS dollar is trading at 4.2 times the greenback.

Zimbabwe's attempt to ease a dollar shortage and stop its currency from plunging in the black market is showing little sign of working.

According to marketwatch.co.zw, a website run by analysts in Harare, the RTGS$ has fallen to its lowest level in more than five months.

The government of President Emmerson Mnangagwa is battling the nation's worst economic crisis in over a decade, with a scarcity of foreign exchange causing shortages of food and fuel and a surge in inflation to almost 60 percent.

Cyclone Idai, which hit Mozambique's coast earlier this month, may worsen the situation because it devastated of the port city of Beira, which is a vital conduit for landlocked Zimbabwe's gasoline and wheat imports, according to Texas-based risk-analysis firm Stratfor.

Also, the low supply of dollars on the interbank market is pushing Zimbabwean businesses into the black market.

Trading volumes over the past three weeks were $45 million, according to local reports citing central bank Governor John Mangudya.

The parallel market is "mainly comprised of desperate buyers and few sellers," said Welcome Mavingire, a managing partner at Intellego Investments Consultants in Harare.

Meanwhile, retailers have bemoaned the shortage of foreign currency, which is undermining their ability to restock.

This has seen some shops undersupplying their customers of various basic products.

Some are, however, deliberately undersupplying products in a bid to sell their products at prices that tally with the rate of the day.

"The supply of goods is constrained from the manufacturer to the retailer. We have been having a long-time problem especially in the production and supply of cooking oil. The supply is erratic, the supply and capacity is constrained because of the limited supply of foreign currency," said Confederation of Zimbabwe Retailers president Denford Mutashu.

"Even the inter-bank exchange rates have failed to improve the situation as it is based on willing buyer-willing seller, so in the end we have more buyers than sellers.

"This has seen some small to medium enterprises bringing in products from outside the country because they have access to foreign currency through the parallel process. But conventional shops are unable to do that because they are unable to get forex from banks and their customers mostly use the RTGS dollar," Mutashu added.

Confederation of Zimbabwe Industries president Sifelani Jabangwe told the Daily News on Sunday that the weakening of the rate against the US dollar will likely trigger further commodity price increases.

"You will see some prices starting to go up that is why we are pushing the governor to make the system more efficient," said Jabangwe.

"We still have issues in getting foreign currency so we are still lobbying the governor to fine tune the system but we are hoping with the opening of the Tobacco floors the situation will get better," he added.

Zimbabweans are being subjected to constant price increases, based on the rate of the day, which is determined by the black market, which currently stands at 1:4.3 against the USD.

Over the past few months, prices of some basic commodities have shockingly increased by as much as 300 percent, creating havoc in the economy and burdening the cash-strapped Zimbabweans more.



Source - dailynews

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