Latest interventions to stabilise ZiG — RBZ . . .Movement in rates was temporary . . .Trend driven by speculation

Emmanuel Kafe

THE ongoing interventions to stabilise ZiG, which include payment of quarterly taxes starting this week and injection of US dollars into the market to meet demand, especially after recent movements in the exchange rate on the parallel market, should result in “exchange rate stability going forward”, Reserve Bank of Zimbabwe (RBZ) Governor Dr John Mushayavanhu has said.

Monetary authorities believe the recent depreciation of ZiG in the alternative market was driven by “transitory foreign currency demand pressures in the economy in preparation for the next cropping season”.

Movements in the exchange rate were also reportedly compounded by negative sentiments on the sustainability of ZiG, which, however, were disconnected to current economic dynamics and the health of the economy.

Prices of goods and services have been increasing in recent weeks as retailers and services made adjustments to hedge against the volatile exchange rate.

“The recent depreciation of ZiG in the alternative market is a result of transitory foreign currency demand pressures in the economy in preparation for the next cropping season,” Dr Mushayavanhu told The Sunday Mail.

“The depreciation has, however, been compounded by perceived negative sentiments on the sustainability of ZiG, as opposed to real monetary and financial dynamics.

“Ironically, the high foreign currency market demand and pressures on the parallel exchange rate are occurring at a time when the country has been recording historical levels of foreign currency receipts, which clearly shows that the pressures are a result of adverse expectations in the forex market.

“For instance, foreign currency receipts increased by 13,4 percent from January to August 2024, compared to the same period in 2023.

“This shows that the depreciation is mainly a result of speculative factors and not economic fundamentals.”

Measures being taken by the Government to strengthen demand for ZiG through the payment of taxes at the QPDs (quarterly payment dates) and interventions by the Reserve Bank to smoothen

foreign currency supply-demand mismatches, Dr Mushayavanhu added, “should result in exchange rate stability going forward”.

The law requires companies to pay taxes on a quarterly basis, with these deadlines, known as QPDs, falling due on March 25, June 25, September 25 and December 20 of each year.

The Government has directed local companies to split their tax payments between ZiG and US dollars, with half being paid in the local unit and the remaining half in the greenback.

The Zimbabwe Revenue Authority typically collects approximately US$300 million worth of corporate income tax each quarter.

In order to meet demand for foreign currency at banks, which has been building up between July and September, the central bank, which says it is aware of the damaging impact of “speculative tendencies by economic agents”, has injected about US$110 million into the market.

In addition to intervening in the market in the event of temporary mismatches in foreign currency supply and demand, the central bank is also releasing US$12 million into the market through the 25 percent surrendered by exporters, in line with current regulations.

These efforts are expected to be bolstered by a significant increase in cash and precious mineral reserves backing ZiG, which have grown from US$285 million to US$375 million since the new currency was launched on April 5.

Current reserves represent more than three times cover for ZiG in circulation.

However, the envisaged demand for ZiG available to meet QPD obligations is forecast to lead to firming of the local unit.

Economist and member of the RBZ Monetary Policy Committee Mr Persistence Gwanyanya also reaffirmed that the current volatility was a result of temporary shocks.

“Now that the central bank has intervened, we expect the volatilities to taper off and stability to return.”

Currently, ZiG is trading at around ZiG30:US$1 on the parallel market, against the official market exchange rate of ZiG13,80:US$1.