Financial markets tipped to remain volatile

ZIMBABWE’S financial markets are likely to remain volatile until nostro foreign currency accounts (FCAs) meet the demand in the real time gross settlement (RTGS) accounts, a local financial services firm has said.

BY TATIRA ZWINOIRA

IH Securities also said by separating the accounts into separate dedicated FCAs and electronic accounts, the central bank was admitting they were not at par.

“We believe that volatility in rates will persist until transferrable foreign currency in FCA nostro accounts meets foreign currency demand in FCA RTGS accounts, thus reaching equilibrium. We estimate the real effective exchange rate to be such that the parallel rate should converge to our estimate of 115% (implied rate 1—2,15) should fundamentals come into play,” IH Securities said in its latest report.

“The RBZ (Reserve Bank of Zimbabwe) introduced the nostro FCA and RTGS FCA account as a way to ring-fence nostro funds and following this announcement black market rates started spiralling out of control as uncertainty gripped.

“The nostro FCA accounts have since been implemented, however, because the RBZ, in essence, admitted that there was a difference between the hard currency and RTGS balances as opposed to the previous mantra of a 1:1 rate, the public has become aware of that their RTGS balances are not worth as much as they believed they were.”

Since central bank governor John Mangudya announced the separation of accounts earlier this month in his monetary policy statement, the market has seen a spike in prices as the black market rates surged.

As of midday yesterday, the US dollar/RTGS rate was USD1: $3,70.

IH Securities said hard currency shortages and the elevated black market premiums were applying severe pressure to local corporates who were typically net importers of raw materials.

“It is our view that north of a 150% premium (implied rate 1—2,5) genuine productive sector businesses have significantly slowed down as ability to pass on that level of cost to the consumer becomes strained. This has had an impact on COGS (cost of goods sold) and we expect this to remain a challenge as long as the currency problems remain unresolved,” IH Securities said.

“Naturally, this also affects companies with off-shore obligations and companies with regional operations but domiciled here meaning that they can’t capitalise their off-shore subsidiaries easily.”

Despite these challenges among others, IH Securities said the economy had been showing signs of recovery.

“… bolstered by strong output performance in key economic sectors namely agriculture, mining and tourism,” IH Securities added.

4 Comments

  1. What growth it sounds strange?

  2. so what’s the way forward people are staving the economy is bad. it looks like we are back in 2008 people robbed of their earnings hard sweat.
    where are we getting our us$ which we deposited which suddenly became bond and zvatovharana musadaro

  3. Your Name (required):Special Black

    We are all getting bond notes from our pensions and salaries. Now if we dont move together as Zimbabweans with a view to have our children get employment, it will take us ages trying to fix each other. There is a group that have inferiority complex, which do not believe that Zimbabweans can do anything. Dependancy sydrome has gotten deep into their brains. When they talk they refer to other counties’ economy. Have you ever ask them how they got there? Give these measures space.

  4. As long as Zimbabwe continues to import more than it earns in exports the pressure on the local currency to lose its value against the foreign currency will remain. Volatility in the whole economy will remain too!

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