A shrinking economy and triple-digit inflation are taking their toll on Zimbabwe’s dollar.
They’re causing a widening gap between the currency’s official and black-market prices, despite Zimbabwe having one of the world’s highest interest rates.
The Zimbabwe dollar has weakened more than 20% this year on the black market to 28.7 per U.S. dollar, according to marketwatch.co.zw, a local website. The official exchange rate is almost 60% stronger at 17.7.
Policy makers held the southern African nation’s key rate at 35% on Monday in an effort to rein in inflation that was probably above 500% at the end of 2019. Among countries tracked by Bloomberg, only Argentina has a higher base rate, at 44%.
The plunge in the currency underscores the shortage of foreign exchange in Zimbabwe, whose gross domestic product contracted more than 6% last year, leaving half the population in need of food aid.
The chaos has spread to the stock market. The main equity index in Harare, the capital, has risen 69% since the end of 2019 as Zimbabweans, who are restricted from moving money abroad due to capital controls, rush to protect their savings from inflation.
Not even in Venezuela, where equities are also used to hedge against soaring prices and a currency collapse, have stocks climbed that much.
Zimbabwean manufacturers are struggling to access the foreign exchange they need for imported supplies through the banking system, according to Michelina Chindiya, a financial analyst at Harare-based Carrick Wealth.
“Key producers are going to the black market for quicker cash,” she said. “This has all happened against the backdrop of elevated inflation in a shrinking economy.”
Central bank Governor John Mangudya said Monday that inflation will likely decelerate to 50% by the end of 2020, which would give the currency some relief.
Zimbabwe reintroduced its local dollar in early 2019 at an initial rate of 2.5 against the U.S. currency. The country has suffered from a dearth of foreign exchange for years and the crisis has only worsened since former President Robert Mugabe, under whom the economy began its decline, was forced out of power in 2017.
©2020 Bloomberg L.P.
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