Factors and events to watch out for: March 16 -20, 2020

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HARARE –  Finance and Economic Development Minister Mthuli Ncube has set in motion measures to steady the volatility of the exchange rate with the latest of the four market signals released so far, being the suspension of fungibility of dual-listed shares for twelve months. As highlighted in an article moved on this service yesterday ( theanchor.co.zw/2020/03/15/govt-suspends-fungibility-on-dual-listed-shares/), Treasury and the Reserve Bank of Zimbabwe had adopted a strategy where they want to quickly flatten or invert the exchange rate projections and to see the ZWL closer to the rand rate, which currently stands at 16.59. More measures are expected to be announced this week.

Last week, the Finance Minister also gazetted that all deposit classes should now be indexed to treasury bill yields which he believes allows the RBZ to run monetary policy effectively and also to drive the redistribution of deposits in the banking sector. This is premised on the notion that banks have been funding the speculative element in the forex demand equation since the entire deposit base was free cashflow at zero cost.

Globally, the World Health Organisation declared Covid-19 (Coronavirus) a pandemic. Rising cases are now being recorded away from mainland China although no cases have been recorded in Zimbabwe yet. The effects of the virus have now shifted from capital markets to economies as countries begin to enter into lockdowns. South Africa, Kenya, Ghana and Rwanda recently followed the USA in issuing partial lockdowns as they have temporarily banned citizens from countries with more than 100 confirmed cases.

Central banks have begun to issue stimulus packages as UAE and Saudi Arabia announced a US$50bn to combat Covid-19 economic effects. The USA cut its Fed benchmark to near zero and plans to boost its bond holdings by US700bn to cushion the economy from Coronavirus shock, as it is trying to encourage continuous economic growth and avoid a recession. Despite the stimulus package, stock market futures hit “limit down” as a sell off was triggered after the Sunday rate cut. Gold and Cryptocurrencies which had a torrid week open this week on a high as Spot gold opened 1.27% higher and jumped to $1,572 ounce before settling lower. Spot silver was up about 1% and hit a high of $15.09 ounce. Bitcoin spiked 2.17% and hit a high of $5,932.

 Economic factors 

  • Targeted exchange rate stability measures – Next measures will most likely be targeted at Ecocash agents after reports that over $1 billion was traded by just 96 agents last month. The FIU is reported to be closely looking at the transactions. It’s also possible that the central bank might in the coming days increase interest rates. Ultimately RBZ will need to completely stop money creation.
  • Launch of the Reuters system – The interbank market is set to migrate to the Reuters forex trading platform tentatively this week. Ncube carefully worded his statement last week when he said that the system will be started by a ‘coalition of willing’. This comes after reports that there were some banks who are not keen on the platform, which is expected to bring transparency and efficiency in the trading of forex. Banks were this morning directed to send in indicative bid and sell rates. Some banks are keen on a rate of 40 although this would quickly come down in the event that interest rates are raised.
  • Rising prices and Inflation – Treasury has resumed the publication of annual inflation statistics with the February data coming in at 540.16% and monthly inflation rising sharply to 13.52%. Prices of basic goods and commodities have started rising to adjust to the recent run on the exchange rate which spiked to 40x against the US Dollar in the previous week. This will put further pressure on wages with most unions having just recently concluded Q2 wage negotiations, which have now been wiped out by the rapid loss of value on the local dollar.
  • Stock Market – Opening session on the stock market was quiet with Old Mutual being offered at 5000c with market sentiment being that Government killed off the little foreign interest that was left on the ZSE after it suspended fungibility on dual listed shares. The key challenge in the absence of foreign participation is that of limited liquidity although this feeds into Government expectations that RTGS will soon be in high demand once exchange rate stability measures are fully implemented.

Political factors

·         Health preparedness  – The country’s preparedness on dealing with the coronavirus continues to be questioned with sentiment that there is not enough awareness tips being rolled out, which would be key in the event that the pandemic reaches Zim borders. Zimbabwe has so far designated Wilkins Hospital as the testing centre while the Health Ministry is making periodic announcements.

·         Continued speculation – Rumours of an imminent change in leadership through a soft coup continue to dominate the corridors of power. That the only solution to the current economic challenges can only be solved politically, is not lost on those in political circles and constant attempts are being made to find a lasting solution amid growing factionalism.

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