Zimbabwe’s gold-backed currency, which was devalued by 43% by the central bank on Friday, remained under pressure on Monday.
The ZiG, short for Zimbabwe Gold, was quoted at 24.88 per dollar compared with 24.39 on Friday, according to data compiled by Bloomberg.
The ZiG was devalued last week in the face of persistent weakness on the unofficial market, amid deep skepticism that the southern African nation’s sixth attempt to stand up a viable local currency since 2009 would succeed.
Previous attempts to establish a Zimbabwean currency were undermined by the central bank printing money to finance government borrowing, something central bank Governor John Mushayavanhu has repeatedly said won’t happen on his watch.
Still, serious economic challenges remain for a nation that has lacked access to global capital markets since 1999 after defaulting on its debts.
“While this is a positive step, it is unlikely to be a one-time adjustment,” said Lyle Begbie, an economist at Oxford Economics in a research note. “The country’s wide current-account and fiscal deficits, along with limited access to external capital markets, will continue to place significant pressure on the currency.”
In addition to devaluing the ZiG, the central bank also raised interest rates to 35% from 20% and took other measures to shore up the currency, including capping the amount of foreign currency an individual can take out of the country at $2 000, compared with $10 000 before.
Mushayavanhu, in an interview with the state-controlled Sunday Mail newspaper, said the devaluation would have “a critical shock-absorbing impact on the prevailing excess liquidity in the economy,” which will help anchor inflation expectations.
Zimbabwean President Emmerson Mnangagwa will deliver a state-of-the-nation address on Wednesday at which he’s expected to touch on the latest economic developments.
Traders on the Zimbabwe Stock Exchange said Monday they don’t expect the currency’s devaluation to cause a material disruption in stock prices. The stock exchange has always been priced to the parallel, or unofficial market, which means that the lower value of the ZiG was already factored in, said Shelton Sibanda, the chief investment officer at Imara Asset Management.
“The impact will be on foreign investors which were looking to leave the stock market,” he said.
The ZiG, backed by Zimbabwe’s gold and hard-currency reserves, was introduced in early April to replace the Zimbabwean dollar, which had lost about 80% of its value since the start of the year. ZiG reserves currently stand at $380 million, Mushayavanhu said in the interview.
Source: News24
