ZWG scarcity has eased exchange rate depreciation  – Industry

By Alois Vinga

LIMITED ZWG availability has eased exchange rate depreciation on the parallel market with US$ demand pressures pushing up the premiums towards the end of 2024.

The ZWG was introduced last year as the country’s first-ever Structured Currency backed by multiple resources like minerals and foreign currency.

After maintaining stability in the first few months, the local premium took a dip, forcing the Reserve Bank of Zimbabwe (RBZ)  to institute measures to safeguard the currency’s total collapse.

The Confederation of Zimbabwe Industries (CZI) inflation tracker noted that the tight liquidity stance has managed to ease parallel market exchange rates.

“Due to the limited supply of ZWG in the market, the depreciation in the parallel market was not sustained, as ZWG started appreciating on the parallel market rate from the 30^th of September 2024. This resulted in a decline in the exchange rate premium to a low level of 27% on the buying rate by mid-October.

“However, since mid-October, the upward pressure on the buying rate at the parallel market began to resurface, which pushed the premium to about 46% on the 31st of October 2024,” the industry group said.

The CZI said sources of liquidity that drove the parallel exchange rate towards the end of October need to be addressed, as the trend in the parallel market had demonstrated that the parallel market rate can indeed appreciate under tight liquidity.

The industry lobby group said the 43% devaluation of the official exchange rate initiated by the RBZ  did not result in convergence with the parallel market buying rate, as the parallel market rate also depreciated by 24% on the same day.

“The recent ZiG inflation surge in the months of September and October 2024 confirms that inflation in Zimbabwe is exchange rate driven. The outlook for inflation generally hinges on the ability to stabilise the exchange rate,” added CZI.