Identifier
Created
Classification
Origin
06HARARE413
2006-04-07 13:22:00
CONFIDENTIAL
Embassy Harare
Cable title:
BANK CEO ON FOREX RATE MOVEMENTS
how-toVZCZCXRO5701 PP RUEHMR DE RUEHSB #0413 0971322 ZNY CCCCC ZZH P 071322Z APR 06 FM AMEMBASSY HARARE TO RUEHC/SECSTATE WASHDC PRIORITY 9847 INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY RUEHUJA/AMEMBASSY ABUJA 1183 RUEHAR/AMEMBASSY ACCRA 1017 RUEHDS/AMEMBASSY ADDIS ABABA 1186 RUEHBY/AMEMBASSY CANBERRA 0447 RUEHDK/AMEMBASSY DAKAR 0806 RUEHKM/AMEMBASSY KAMPALA 1240 RUEHNR/AMEMBASSY NAIROBI 3593 RUEHFR/AMEMBASSY PARIS 1011 RUEHRO/AMEMBASSY ROME 1641 RUEHBS/USEU BRUSSELS RUEHGV/USMISSION GENEVA 0559 RHEHNSC/NSC WASHDC RUCNDT/USMISSION USUN NEW YORK 1398 RUEKJCS/JOINT STAFF WASHDC RUEHC/DEPT OF LABOR WASHDC RUEATRS/DEPT OF TREASURY WASHDC RUEKDIA/DIA WASHDC//DHO-7// RUCPDOC/DEPT OF COMMERCE WASHDC RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK//DOOC/ECMO/CC/DAO/DOB/DOI// RUEPGBA/CDR USEUCOM INTEL VAIHINGEN GE//ECJ23-CH/ECJ5M//
C O N F I D E N T I A L HARARE 000413
SIPDIS
SIPDIS
AF/S FOR B. NEULING
NSC FOR SENIOR AFRICA DIRECTOR C. COURVILLE
STATE PASS TO USAID FOR M. COPSON AND E.LOKEN
TREASURY FOR J. RALYEA AND B. CUSHMAN
COMMERCE FOR BECKY ERKUL
E.O. 12958: DECL: 01/12/2016
TAGS: ECON EFIN PGOV ASEC ZI
SUBJECT: BANK CEO ON FOREX RATE MOVEMENTS
REF: HARARE 0098
Classified By: Ambassador Christopher Dell under Section 1.4 b/d
C O N F I D E N T I A L HARARE 000413
SIPDIS
SIPDIS
AF/S FOR B. NEULING
NSC FOR SENIOR AFRICA DIRECTOR C. COURVILLE
STATE PASS TO USAID FOR M. COPSON AND E.LOKEN
TREASURY FOR J. RALYEA AND B. CUSHMAN
COMMERCE FOR BECKY ERKUL
E.O. 12958: DECL: 01/12/2016
TAGS: ECON EFIN PGOV ASEC ZI
SUBJECT: BANK CEO ON FOREX RATE MOVEMENTS
REF: HARARE 0098
Classified By: Ambassador Christopher Dell under Section 1.4 b/d
1. (SBU) CEO of Standard Chartered Bank Washington Matsaira
told the Ambassador on April 3 that a combination of
attractive interest rates on GOZ Treasury bills and increased
availability of fuel had contributed to a cooling of the
parallel foreign exchange market over the past month. The
parallel market rate remained around Z$210,000:US$1
throughout March, after having jumped from about
Z$140,000:US$1 to Z$200,000:US$1 in the month after the
Reserve Bank of Zimbabwe (RBZ) introduced volume-based rate
adjustment in late January (reftel). Matsaira commented that
the high price of fuel (anywhere between Z$195,000 and
$150,000 per liter today) was also dampening demand for that
product.
2. (SBU) Matsaira, however, told the Ambassador this
relative stability would soon come to an end. Exporters were
taking a beating from the overvalued official exchange rate,
which had not budged since late January. Tobacco growers in
particular, having incurred highly inflated local production
costs, were lobbying the RBZ for a devaluation ahead of the
opening of the tobacco sales floors on April 25. Matsaira
concurred with the Ambassador that ZANU-PF insiders were
heavily involved in tobacco farming and could be expected to
press for a devaluation from which they would gain
significantly.
--------------
Comment
--------------
3. (C) Like Matsaira, we are not sanguine that the recent
relative "stability" in the parallel exchange rate premium
will persist. There are already credible reports that the
parallel rate has edged up to Z$230,000:US$1 in the last
week. Demand for forex has probably softened recently as the
RBZ is no longer competing as heavily in the parallel market
after it finished paying down arrears to the IMF. But this
does not change any of the fundamental problems underlying
the Zim dollar's decline - growing loss of faith in the
currency, lack of confidence in the GOZ's economic policies,
dependence on forex-denominated industrial inputs, etc. When
the RBZ finally moves to belatedly close the gap between the
official and parallel rates, whether as a result of pressure
from powerful tobacco growers or any other reason, it will
likely trigger a further stampede in the parallel market
because of this underlying lack of confidence in the economy.
This has been the oft-repeated experience of the past year
as the RBZ consistently struggles and plays catch up. With
inflation continuing to worsen and the RBZ continuing to
resort to the printing press as its only short-term policy
"solution," there's little reason to expect an end to this
cycle of decline, devaluation and looming disaster.
DELL
SIPDIS
SIPDIS
AF/S FOR B. NEULING
NSC FOR SENIOR AFRICA DIRECTOR C. COURVILLE
STATE PASS TO USAID FOR M. COPSON AND E.LOKEN
TREASURY FOR J. RALYEA AND B. CUSHMAN
COMMERCE FOR BECKY ERKUL
E.O. 12958: DECL: 01/12/2016
TAGS: ECON EFIN PGOV ASEC ZI
SUBJECT: BANK CEO ON FOREX RATE MOVEMENTS
REF: HARARE 0098
Classified By: Ambassador Christopher Dell under Section 1.4 b/d
1. (SBU) CEO of Standard Chartered Bank Washington Matsaira
told the Ambassador on April 3 that a combination of
attractive interest rates on GOZ Treasury bills and increased
availability of fuel had contributed to a cooling of the
parallel foreign exchange market over the past month. The
parallel market rate remained around Z$210,000:US$1
throughout March, after having jumped from about
Z$140,000:US$1 to Z$200,000:US$1 in the month after the
Reserve Bank of Zimbabwe (RBZ) introduced volume-based rate
adjustment in late January (reftel). Matsaira commented that
the high price of fuel (anywhere between Z$195,000 and
$150,000 per liter today) was also dampening demand for that
product.
2. (SBU) Matsaira, however, told the Ambassador this
relative stability would soon come to an end. Exporters were
taking a beating from the overvalued official exchange rate,
which had not budged since late January. Tobacco growers in
particular, having incurred highly inflated local production
costs, were lobbying the RBZ for a devaluation ahead of the
opening of the tobacco sales floors on April 25. Matsaira
concurred with the Ambassador that ZANU-PF insiders were
heavily involved in tobacco farming and could be expected to
press for a devaluation from which they would gain
significantly.
--------------
Comment
--------------
3. (C) Like Matsaira, we are not sanguine that the recent
relative "stability" in the parallel exchange rate premium
will persist. There are already credible reports that the
parallel rate has edged up to Z$230,000:US$1 in the last
week. Demand for forex has probably softened recently as the
RBZ is no longer competing as heavily in the parallel market
after it finished paying down arrears to the IMF. But this
does not change any of the fundamental problems underlying
the Zim dollar's decline - growing loss of faith in the
currency, lack of confidence in the GOZ's economic policies,
dependence on forex-denominated industrial inputs, etc. When
the RBZ finally moves to belatedly close the gap between the
official and parallel rates, whether as a result of pressure
from powerful tobacco growers or any other reason, it will
likely trigger a further stampede in the parallel market
because of this underlying lack of confidence in the economy.
This has been the oft-repeated experience of the past year
as the RBZ consistently struggles and plays catch up. With
inflation continuing to worsen and the RBZ continuing to
resort to the printing press as its only short-term policy
"solution," there's little reason to expect an end to this
cycle of decline, devaluation and looming disaster.
DELL