- ZiG has seen a decline in value, dropping to 26.4072 against the US dollar as of February 7, 2025
- The RBZ reduced the foreign currency retention threshold for exporters from 75% to 70%, aiming to increase foreign currency supply in the interbank market
- The RBZ maintained the benchmark interest rate at 35% to curb inflation and introduced a minimum deposit rate of 5% to incentivize savings
Harare- The Zimbabwe Gold (ZiG) experienced a downward trajectory over two consecutive weeks, depreciating to 26.4072 against the US dollar on February 7, 2025, from 26.3656 on January 31, 2025, reflecting a week-on-week decline of 0.2%.
As part of measures to ensure stability, the Reserve Bank of Zimbabwe (RBZ) unveiled its Monetary Policy Statement (MPS) on 6 February 2025, outlining a series of measures designed to stabilise the ZiG and reinforce its position in the foreign exchange market.
The MPS emphasised a stringent liquidity management framework and introduced additional policies to bolster the currency's resilience.
A key policy adjustment involved the reduction of the foreign currency retention threshold for exporters from 75% to 70%, aimed at augmenting foreign currency supply in the interbank market and fortifying the nation's foreign exchange reserves.
This measure, however, diverged from exporters' expectations, as they had anticipated retaining at least 85% of their foreign currency earnings.
Since its inception on the fifth of April 2024, the ZiG has faced significant headwinds, prompting the RBZ to intervene repeatedly by injecting USD into the market.
Between April and December 2024, the central bank injected US$407.4 million, followed by an additional US$35 million in January 2025, to stabilise the currency. These interventions highlight the imperative of bolstering foreign currency holdings, albeit with associated trade-offs that warrant careful analysis.
The RBZ also maintained the benchmark interest rate at 35%, a strategic move to curb inflationary pressures by increasing the cost of borrowing, thereby dampening spending and investment. This policy is instrumental in stabilizing the ZiG by mitigating rapid price escalations.
Concurrently, the central bank raised the minimum deposit rate to 5%, incentivising savings and enhancing liquidity within the banking sector. Higher deposit rates encourage individuals and businesses to allocate funds to savings rather than consumption, reducing immediate demand for USD and supporting the ZiG's stability.
Also, increased deposits enhance the liquidity of local banks, enabling them to extend credit more effectively and stimulate economic activities denominated in local currency.
In addition, the RBZ standardised the Statutory Reserve Requirements (SRR) at 30% for demand deposits and 15% for savings and fixed deposits. This measure plays a pivotal role in managing liquidity conditions by controlling the money supply and curbing inflationary pressures, thereby supporting the ZiG's stability.
By mandating that banks retain a significant portion of their deposits as reserves, the RBZ aims to mitigate excessive lending and inflationary risks.
However, this approach also constrains banks' lending capacity, as a substantial share of deposits is immobilised as reserves. This tightening of credit availability could disproportionately impact small and medium enterprises (SMEs), which rely heavily on loans for operational expansion and investment, potentially slowing economic growth and hindering business sector development.
The reduction in export retention thresholds may exacerbate liquidity constraints for exporters, limiting their access to USD and creating operational challenges for businesses dependent on foreign currency.
Reforms in the Interbank Foreign Exchange Market may introduce volatility risks, particularly for smaller enterprises lacking the resources to manage forex exposure effectively.
Businesses have to adopt robust hedging strategies to mitigate exchange rate risks and optimize forex utilisation by prioritising essential imports and strategically managing foreign obligations.
Therefore, RBZ must carefully navigate these trade-offs to ensure both currency stability and the broader economic development agenda are achieved.
Equity Axis News
