Zimbabwe’s dollar risks collapsing, business lobby says

Zimbabwe’s dollar risks collapsing, business lobby says

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Zimbabwe’s currency faces collapse unless the authorities implement policy measures needed to support it, the country’s main business lobby group said.

Instability in the foreign-exchange market is being driven by an unrelenting increase in money supply, increasing imports and long delays in settlement at the central bank’s weekly currency auction, the Chamber of Zimbabwe Industries said in a statement.

“We find ourselves in a situation that could and should have been avoided had the appropriate policy prescriptions been in place,” the chamber said. “We are of course concerned about the response by the authorities so far, which was to blame players in the foreign currency markets as the sole cause of the currency instability.”

Delays at the central bank auction are forcing Zimbabwean companies to source their foreign exchange on the illegal parallel market. That’s resulted in the spread between the official and black-market rates more than doubling in recent weeks.

“This instability in the currency has prompted an aggressive administrative response from the authorities that, if continued, will send the economy into a hyper-inflationary tailspin,” it said. The Zimbabwean dollar is “in real peril and urgent and well considered policy measures must be implement by the authorities.”

The official rate has weakened 7.6% so far this year to 88.55 per US dollar, according to data collected by Bloomberg. It trades at 176 per US dollar on the parallel market, according to marketwatch.co.zw, a website that tracks black-market rates.

Declines in the parallel-market rate often lead to price hikes in the southern African nation, where annual inflation was 52% in September.

In 2008 the currency plunged and a bout of hyperinflation decimated savings and resulted in shortages. The currency was scrapped early the next year and the use of foreign currencies was legalised. The Zimbabwe dollar was only reintroduced in 2019

The central bank said Monday it reached agreement with businesses and government ministries on ways to address volatility in the illegal parallel market, which business increasingly is using as an alternative to the auction system to source foreign exchange.

Steps to be taken include reviewing bank policy rates to curb speculative borrowing, tightening money supply and government support for the auction system, the bank said in a statement.

© 2021 Bloomberg

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