• The Zimbabwe dollar has gained for the fifth time on auction market
  • On interbank, it has gained for the sixth time
  • However, the pricing conundrum remains

Harare-  The Zimbabwe dollar exhibited its fifth consecutive period of appreciation on the latest auction market, trading at ZWL4505.4232 against the greenback, up from ZWL4771.3854. This marked a significant week-on-week increase of 6%, with the currency registering an impressive month-on-month appreciation of 27%. These gains have resulted in an impressive year-to-date performance of 41%.

On the latest interbank market session, the currency also continued its upward trajectory, trading at ZWL4517.1359 in contrast to the previous week's figure of ZWL4537.4909, thus marking its sixth consecutive session of gains. The market witnessed an offering of US$20 million, which was subsequently allotted a sum of US$14 million - a significant increase from the previous week's allotment of US$5 million. 

The underlying factors driving this trend remain complex and multifaceted, and it remains to be seen how sustainable this trajectory will be in the long term given there are no clear fundamentals the appreciation is based on. 

According to our analysis, the present phase of stability witnessed in the financial market is not a result of any meaningful reforms or fiscal and monetary discipline, but rather, a strategic withholding of Zimbabwean dollars by the government, thereby depriving the market of sufficient liquidity. 

This strategic manoeuvre has been achieved through the government's lack of compliance with its financial obligations, which includes the non-payment of contractors currently engaged in ongoing infrastructure projects, as well as the non-fulfilment of exporters' forex surrender requirements. 

Furthermore, the government is yet to meet its financial obligations on external debt newly acquired by the Reserve Bank of Zimbabwe.

In light of these circumstances, prices are not trekking the formal market movement despite its recent streak of consistent appreciation. 

The Zimbabwe dollar is still in a floating state, and albeit its positive trajectory, it has yet to anchor itself in stability. As a result, it is challenging to predict its future trajectory with any degree of certainty, making any attempt at repricing an arduous and unstable undertaking. 

Given the dynamic nature of the Zimbabwean currency, retailers will need to enforce weekly repricing to reflect the constantly shifting value, which is nearly impossible. 

Also, it is crucial to acknowledge that numerous businesses have restocked their inventories during a period of volatile exchange rates, rendering it challenging for them to sell their products below cost, thereby incurring significant losses. 

The bedrock of sustainable enterprise is predicated on minimising costs and optimising profits, which necessitates a stable market environment that enables businesses to forecast with reasonable certainty.

The current economic landscape, however, is characterized by a high degree of uncertainty and volatility, which has disrupted the normal operations of many enterprises. As such, businesses are grappling with the challenge of balancing their costs and revenue streams in a market environment that is unforgiving and unpredictable.

Still, at large the market exhibits a lack of trust in the government's policies, particularly in light of the recent upward trajectory of the Zimbabwean dollar. The market has gleaned valuable insights from previous experiences, including the introduction of the foreign auction system in June 2020, which ushered in a period of relative stability in terms of price and ZWL valuation. 

However, this period was short-lived as the authorities reverted to a state of fiscal and monetary indiscipline, leading to a disruptive and unpredictable market environment. This inconsistency in policy adversely impacted businesses that had accrued a substantial amount of Zimbabwean dollars, further complicated their operations and hindered their ability to remain sustainable. 

It is pertinent to acknowledge that the recent uptick in the value of the Zimbabwean dollar is perceived by some as lacking authenticity, given the intricate and complicated factors influencing the market dynamics. In this context, businesses' inability or unwillingness to comply with official exchange rates ought not to be construed as a deliberate or malicious act but rather as a rational response to the complex and dynamic economic conditions prevailing in the market.

The intricate web of interrelated factors driving these market dynamics necessitates deep analysis and scrutiny to identify the most effective policy interventions that will promote stability and foster sustainable enterprise over the long term. 

The sustainability of the current trajectory remains uncertain, and the real future market conditions will determine the impact on the Zimbabwean currency's performance. 

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