According to FBC Securities, a prominent securities firm, people in Zimbabwe still lack confidence in the local currency. This is because they have experienced situations in the past where the currency lost its value rapidly due to high inflation. These instances, particularly in 2008 and 2019, resulted in significant financial losses for individuals and businesses.
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The lack of confidence in the currency is seen as the main reason for the unstable exchange rates, capital leaving the country, and persistently high inflation rates that are difficult to manage, source reported citing FB Securities’ third-quarter report. Read the report in part:
Promoting wider use of the local currency has been challenging as economic agents continue to favour the US dollar (US$) for transacting and value preservation.
While exchange rate stability has been achieved to an extent, and official inflation figures continue to trend downwards, confidence in the local currency remains low due to past experiences of volatility and value loss.
FBC Securities expressed concerns about the stability of the Zimbabwe dollar. They believe that the currency’s stability depends on the government’s ability to control the money supply, build confidence, and encourage the use of the local currency. The firm suggests implementing measures to increase the supply of foreign currency and reduce the demand for the US dollar while promoting the use of the local currency.
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Currently, the US dollar remains widely used in the country, with most bank loans and transactions being conducted in US dollars. The government has been promoting the use of the local currency and has taken steps to manage inflation and exchange rate pressures. Inflation has slowed down since a new calculation method was adopted, which considers the dominance of US dollar transactions. Annual inflation dropped to 18.4% in September, compared to 77% in August. The authorities expect inflation to continue declining, reaching levels below 3% on a monthly basis and decreasing by 60-70% by the end of the year.
FBC Securities also predicts that pressure on the local currency will remain high, especially during the second half of the year when fiscal spending increases for agricultural purposes and bonuses. They anticipate that the stock market’s performance will be influenced by liquidity conditions and concerns about preserving value amid the currency situation. The firm expects investors to show growing interest in alternative investments as they assess the local economic conditions.
Source Pindula News
