- The ZWL appreciated by 9%, the first significant gain
- The ZWL traded at 6.3K from 6.9 last week
- However, the appreciation is simply a short-term fluctuation in response to market forces
Harare- The Zimbabwean Dollar (ZWL) experienced a significant appreciation of 9% on the Reserve Bank of Zimbabwe (RBZ)-governed Foreign Exchange Auction Market, marking its first notable gain since the reintroduction of the auction system in 2020. This represents a positive shift in macroeconomic conditions and offers prospects for currency stability. The latest appreciation followed the one witnessed last week week on interbank, a 1% increase against the US dollar.
The Zimbabwe dollar traded at ZWL6326.5877 from ZWL6926.5764 last week, garnering a 9% increase, the best performance since the beginning of the year and the reintroduction of the auction system in 2020.
If the appreciation was a real one, not manufactured or pegged by the government to please the electorate, it is difficult to say with certainty that one factor contributed as since the beginning of the month, the government tried to remain dovish.
One of the early reasons is the government's tax policy announcement on June 23rd which compelled companies to pay 50% of their June taxes in Zimbabwe dollars. The policy implied companies selling US Dollars to get Zimbabwe dollars, thus increasing demand. This has boosted confidence in the Zimbabwean economy, as it suggests that the government is taking steps to increase revenue and stabilise the currency.
The appreciation may also be a gradual process related to the recent introduction of a new foreign exchange auction system by the Reserve Bank of Zimbabwe. This system is intended to improve the allocation of foreign currency and reduce the black-market premium on foreign exchange, which plays significant in bringing the Zimbabwe dollar stability. Currently, the parallel market rate has depreciated from 13000 per dollar to a region of 9000 to 10000 per dollar. However, the market still boasts circa 30% premium.
Another possible factor is increased demand for Zimbabwean exports, particularly minerals and tobacco as the country is enjoying the best tobacco-selling season ever. Tobacco and mineral exports generate foreign exchange inflows and support the value of the Zimbabwe dollar.
However, it is key to note that the appreciation of the Zimbabwe dollar is simply a short-term fluctuation in response to market forces, and may not be indicative of a broader trend towards currency stability.
A broader trend of currency stability entails continued money tightening especially ahead of the general elections, dealing decisively with corruption and improving the country’s business risk index. With more sanity increased in the economy, then, we can talk of a broader trend of stability.
It is also worth noting that since RBZ was banned from printing money without the approval of the government, the ZWL has been appreciating too.
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