October monthly snapshot

Monthly inflation in October 2021 was 6.4% from 4.7% in September. M-o-m inflation has been on a steady increase since August. Should the current trend continue, annual inflation will end the year around 55-65% against a government forecast of 53%. The rising inflation levels have been attributed to volatility of the parallel exchange rate. In recent weeks there has been strong demand for foreign currency on the auction as well, possibly indicative of a growing economy and therefore activity in industry.

The central bank has managed to keep money supply growth within the targeted levels with the MPC revising downwards the 20% target growth in reserve money to 10% in an effort to contain inflation growth.Other measures introduced include increasing the Bank policy rate from 40% to 60%, increasing statutory reserve requirements for demand/call deposits from 5% to 10% and increasing minimum deposit rates for ZW$ savings and time deposits from 5% and 10% per annum to 7.5% and 20%, respectively.

However, this may be countered by the requirement to fund 2021/22 agricultural inputs. When those funds hit the market there may be further pressure on the exchange rate and this will filter down to inflation.

In addition, individuals are likely to continue converting RTGS to US$ to maintain value. On the ZSE, we have been observing an uptick in share prices and we are of the view this is as a result of investors fleeing to inflation hedging assets. Despite occasional weakness due to profit taking, we expect the upward trend in the market capitalisation to continue to year end.

Key local highlight

  • Zimbabwe’s gold output in the first nine months of the year rose 29% to 18.89 tonnes from 14.65 tonnes reported in the prior comparative period owing to favourable policy measures put in place by the central bank.  The measures included the 5% incentives for deliveries of at least 20kgs by small scale miners and the timeous cash payments to small scale miners. Head of gold operations at Fidelity Printers and Refiners (FPR), Mehluleli Dube said gold output for September more than doubled to 3.17 tonnes from 1.36 tonnes during the same period last year.
  • The Deposit Protection Corporation (DPC) has established a deposit insurance facility for foreign currency denominated accounts (FCAs) with a maximum cover level of US$1 000 per deposit class for each bank. DPC’s primary objective is to provide deposit protection to depositors in deposit taking institutions licensed by the Reserve Bank of Zimbabwe. In the event of failure of a member institution, DPC will compensate depositor’s part or all of their funds that were in the closed member institution up to the maximum cover limit prevailing at the time of closure. However, following the separation of deposit accounts into Zimbabwe dollar and nostro FCAs, there had been no explicit deposit protection of nostro FCAs in Zimbabwe.
  • The good harvest realised by Zimbabwe from the last farming season will slash the import bill by US$300m, a senior government official has said. This comes as the mining and agriculture sectors have been encouraged to work together in a sustainable way. Zimbabwe is expecting a total harvest of 2.8m tonnes of maize and 360 000 tonnes of traditional grains from the past season as a result of the good rains, with some being kept back by producers for their own needs and much sold to the Grain Marketing Board. Lands, Agriculture Fisheries, Water and Rural Resettlement Deputy Minister Vangelis Haritatos said the recent success in food production indicated that Zimbabwe was on course to achieve the US$8.2bn revenue from agriculture by 2025 under the Agriculture and Food Systems Transformation Strategy.—IH Securities

 

 

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