Zim dollar to fall, boosting exports

HARARE – Zimbabwe’s dollar is expected quickly to lose half its official value on a new interbank market, which would push inflation up, but exports will rise as it weakens, analysts said on Friday.

The Reserve Bank of Zimbabwe (RBZ) on Thursday announced the reintroduction of an interbank trading system to determine the exchange rate for the local dollar, but exporters will still have to remit 30 per cent of their earnings at a rate to be determined by the bank. Treasurers from commercial banks met the central bank on Friday to clarify the guidelines on the floating exchange rate system and trading was expected to start on Monday.Analysts said the Zimbabwe dollar was likely to fall to around 60 000 per US dollar versus the official 26 000 during the first week of trade and gradually weaken to near rates on the thriving black market of 90 000/US$.”We should see the Zimbabwe dollar trading at around 60 000 in the first week which will be followed by a gradual depreciation to within parallel market levels, that’s where it should settle,” said a dealer with a Harare commercial bank.Black market activity would continue since official avenues would not meet the higher appetite for imports, dealers said.Analysts said with the local unit expected to weaken sharply as it seeks a market-determined rate, inflation would spike before subsiding in the first quarter of 2006.Reserve bank governor Gideo Gono on Thursday said inflation, which reached 359,8 per cent in the year to September, would ease to between 280-300 per cent by year-end.Although the bank’s forecast is higher than the initial 50 and 80 per cent target, analysts say it was still conservative.”In the short term we are going to see inflation going up beyond 400 per cent because a lot of our inflation is coming from the import side,” James Jowa, a Harare economist, told Reuters.Zimbabwe is suffering its worst economic crisis since independence from Britain in 1980.Acute shortages of foreign currency, whose rate was controlled by the central bank, created a black market for almost everything – resulting in hyperinflation, prolonged recession and rampant poverty.Consultant economist Eric Bloch said it would take time for exporters, who have become key in generating foreign currency for Zimbabwe, to benefit from the new exchange rate regime.”This move is going to be positive but it’s not a quick fix to our problems.There is a time lag for (exporters’) response and I can’t see that happening until around April next year,” Bloch said.Analysts urged the government to create conditions for foreign investment and attract balance of payment support crucial in stabilising the local currency and easing inflationary pressures.Zimbabwe has been without donor support since 1999 after foreign lenders led by the International Monetary Fund withheld cash over policy differences such as the seizure of white-owned farms to resettle blacks.On Thursday Gono stepped up criticism of fresh invasions of commercial farms and said lack of respect for private property rights made investors apprehensive and scared them away to other more secure destinations.”We need to have a shift in government policy so that it meets international norms of law and order and until that happens we are not going to see balance of payment support or foreign investors coming to Zimbabwe,” Bloch said.-Nampa-ReutersTreasurers from commercial banks met the central bank on Friday to clarify the guidelines on the floating exchange rate system and trading was expected to start on Monday.Analysts said the Zimbabwe dollar was likely to fall to around 60 000 per US dollar versus the official 26 000 during the first week of trade and gradually weaken to near rates on the thriving black market of 90 000/US$.”We should see the Zimbabwe dollar trading at around 60 000 in the first week which will be followed by a gradual depreciation to within parallel market levels, that’s where it should settle,” said a dealer with a Harare commercial bank.Black market activity would continue since official avenues would not meet the higher appetite for imports, dealers said.Analysts said with the local unit expected to weaken sharply as it seeks a market-determined rate, inflation would spike before subsiding in the first quarter of 2006.Reserve bank governor Gideo Gono on Thursday said inflation, which reached 359,8 per cent in the year to September, would ease to between 280-300 per cent by year-end.Although the bank’s forecast is higher than the initial 50 and 80 per cent target, analysts say it was still conservative.”In the short term we are going to see inflation going up beyond 400 per cent because a lot of our inflation is coming from the import side,” James Jowa, a Harare economist, told Reuters.Zimbabwe is suffering its worst economic crisis since independence from Britain in 1980.Acute shortages of foreign currency, whose rate was controlled by the central bank, created a black market for almost everything – resulting in hyperinflation, prolonged recession and rampant poverty.Consultant economist Eric Bloch said it would take time for exporters, who have become key in generating foreign currency for Zimbabwe, to benefit from the new exchange rate regime.”This move is going to be positive but it’s not a quick fix to our problems.There is a time lag for (exporters’) response and I can’t see that happening until around April next year,” Bloch said.Analysts urged the government to create conditions for foreign investment and attract balance of payment support crucial in stabilising the local currency and easing inflationary pressures.Zimbabwe has been without donor support since 1999 after foreign lenders led by the International Monetary Fund withheld cash over policy differences such as the seizure of white-owned farms to resettle blacks.On Thursday Gono stepped up criticism of fresh invasions of commercial farms and said lack of respect for private property rights made investors apprehensive and scared them away to other more secure destinations.”We need to have a shift in government policy so that it meets international norms of law and order and until that happens we are not going to see balance of payment support or foreign investors coming to Zimbabwe,” Bloch said.-Nampa-Reuters