“Why Rates Will Rise Again,” – OPINION

Analysts have observed that exchange rates which tumbled on Friday are likely to go up again. They opine that the instrument which the central bank, Reserve Bank of Zimbabwe, used to effect a retreat was not sustainable.

Rates dramatically fell following a memo to all banks by the RBZ instructing them to freeze all bank accounts belonging to Sakunda Holdings, Croco Motors and other companies related to them.

Reports suggest that these companies were involved in money laundering.

Zim Price Check observe that the rise in exchange rates was necessitated by the deficit of foreign currency on both the formal and informal markets.

Therefore, if there is less supply of the foreign currency, particularly the United States dollar, rates are expected to rise again.

Recently, deputy Governor of the Reserve Bank, Kupukile Mlambo attributed the plunge of the local currency to the closure of the tobacco season. Addressing Parliamentarians earlier this week, Mlambo said:

The movement of the exchange rate are a reflection of the fact that we have come to an end of the tobacco marketing season. This country relies on four commodities for foreign currency, gold, tobacco, chrome and platinum, and between February to the end of August or early September we had only three, so the amount of foreign currency has declined and these movements are a reflection of that.

Demand for foreign currency will continue considering that the local industry is still in a parlous state. Most of the goods and services used in required to keep industry and business in the country running are imported.

That means high demand for foreign currency which as Dr Mlambo indicated is in low supply.

More: Zim Price Check

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