Zimbabwe’s Foreign-Currency Reserves Rise to $509M on ZiG Demand
TLDR
- Zimbabwe's foreign-currency reserves increase to $509 million, driving demand for local currency ZiG.
- Intensified businesses liquidation of foreign-currency holdings contributes to ZiG's strength.
- ZiG appreciates to 25.60 against the dollar after central bank's interest rate hike to 35%.
Zimbabwe’s foreign-currency reserves have grown to $509 million as businesses increase liquidation of their foreign-currency holdings, driving demand for the local currency, the ZiG. Launched in April and backed by Zimbabwe’s gold and hard currency reserves, the ZiG is Zimbabwe’s sixth attempt in 15 years to establish a stable local currency.
Reserve Bank Governor John Mushayavanhu notes that the appreciation of the ZiG is supported by the central bank’s recent interest rate hike to 35% from 20%, aimed at stabilizing the currency. The ZiG saw its first weekly gain since a September devaluation, trading at 25.60 against the dollar.
With tight liquidity and a stringent monetary policy, businesses have become more inclined to liquidate foreign-currency positions, contributing to the ZiG's strength. Local currency reserves now stand at ZiG 3.4 billion ($129 million).
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Key Takeaways
The ZiG’s recent firming reflects the impact of Zimbabwe’s tightened monetary policy and rising interest rates, which have increased foreign-currency liquidation by companies. Although the ZiG is gaining traction, inflation surged to 37.2% in October, following the currency’s 43% devaluation in September. This underscores Zimbabwe’s ongoing challenges in achieving currency stability and managing inflation. The Reserve Bank’s approach signals a cautious attempt to stabilize the ZiG, but sustained success will depend on balancing currency strength with inflationary pressures in a volatile economic environment.
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