Zimbabwe devalues currency to tackle economic crisis

Commercial banks reopened on Friday in Zimbabwe after a bank holiday, with queues outside no longer than usual. (Reuters)
Updated 22 February 2019
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Zimbabwe devalues currency to tackle economic crisis

  • Zimbabwe adopted the dollar in 2009 but introduced a parallel system of bond notes that it pegged at 1:1 to the US currency

HARARE: Zimbabwe’s central bank began trading a sharply discounted replacement currency on Friday, attempting to ease a cash crunch that has hobbled the economy and plunged millions deep into poverty.
Zimbabwe adopted the dollar in 2009 but, as a chronic hard currency shortage worsened, introduced a parallel system of bond notes that it pegged at 1:1 to the US currency.
Effectively reintroducing a national currency, the Reserve Bank of Zimbabwe (RBZ) said on Wednesday it would carry out a “managed float” of the surrogate, which fetches far less than a dollar on the black market.
The bond notes and electronic dollars, locked in individuals’ accounts for months due to a lack of cash, will be merged into a separate currency called RTGS — or real-time gross settlement — dollars, the central bank said.
It sold US dollars to banks at 2.5 RTGS dollars on Friday morning, Bank Governor John Mangudya told business leaders.
Commercial banks reopened on Friday after a bank holiday, but with exchange facilities from bond notes to US dollars at the same 2.5 rate limited to individual and corporate holders of foreign currency accounts, queues outside appeared to be no longer than usual.
Other members of the public should, in theory, be able to go to banks on Monday and buy US dollars with bond notes or electronic dollars.
But it is not clear how many US dollars the central bank, which only has enough foreign exchange for two weeks of imports, has sold to banks.
The bond notes and notional electronic funds have plummeted on Zimbabwe’s black market in recent months to around 4 per dollar.
Many foreign traders have stopped accepting bond notes as legal tender, leaving businesses such as millers, brewers and miners hamstrung.
Economists cautiously welcomed the central bank’s decision to allow its currency to devalue.
The RBZ hopes its new measures will temper demand for dollars on the black market and ease inflation as the new currency settles at fair value.


US economists less optimistic, see slower growth: survey

Updated 25 March 2019
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US economists less optimistic, see slower growth: survey

  • While the odds of a US recession by 2020 remain low, they are rising
  • The odds of a recession starting in 2019 is at around 20 percent, and for 2020 at 35 percent

WASHINGTON: US economists are less optimistic about the outlook and sharply lowered their growth forecasts for this year, amid slowing global growth and continued trade frictions, according to a survey published Monday.
And while the odds of a recession by 2020 remain low, they are rising, the National Association for Business Economics said in their quarterly report.
The panel of 55 economists now believe “the US economy has reached an inflection point,” said NABE President Kevin Swift.
The consensus forecast for real GDP growth was cut by three tenths from the December survey, to 2.4 percent after 2.9 percent expansion in 2018.
The economy is expected to slow further in 2020, with growth of just 2 percent, the report said.
Three-quarters of respondents cut their GDP forecasts and believe the risks of to the economy are weighted to the downside.
“A majority of panelists sees external headwinds from trade policy and slower global growth as the primary downside risks to growth,” NABE survey chair Gregory Daco said in a statement.
“Nonetheless, recession risks are still perceived to be low in the near term.”
Panelists put the odds of a recession starting in 2019 at around 20 percent, and for 2020 at 35 percent, slightly higher than in December.
Daco said that “reflects the Federal Reserve’s dovish policy U-turn in January” when the central bank said it would keep interest rates where they are for the foreseeable future, a message reinforced this week.
After four rate increases last year, Daco said a “near-majority of panelists anticipates only one more interest rate hike in this cycle compared to the three hikes forecasted in the December survey.”
Panelists see wage growth as the biggest upside risk to the economy, despite expected increase of just 3 percent this year, as inflation holds right around the Fed’s 2 percent target.
Meanwhile, amid President Donald Trump’s aggressive tariff policies, the panel projects the trade deficit will rise to a record $978 billion this year, beating last year’s record $914 billion.
In an interesting twist in the survey, only 20 percent said they expected to see the dreaded “inverted yield curve” — when the interest rate on the 10-year Treasury note falls below the 3-month bill — this year.
In fact, the yield curve inverted on Friday for the first time since 2007.