ZiG exchange rate premium drops to 20pc

THE ZiG parallel market exchange rate premium has narrowed to about 20 percent, its lowest in two years, reflecting stability in Zimbabwe’s foreign exchange market amid prudent liquidity management and increased foreign currency availability.

The premium has steadily declined from its ZiG-era peak levels of about 80 percent reached in the second half of 2024, reflecting marked progress towards convergence between the official and unofficial exchange rates.

The ZiG was officially introduced by the central bank on April 5, 2024, during the Monetary Policy Statement presentation.

While the parallel market exchange rate has remained broadly stable at around ZiG32 per US dollar, the official exchange rate has gradually adjusted upwards to approximately ZiG28-29 per US dollar, significantly narrowing the gap between the two markets.

In its June 2026 Inflation and Currency Developments Update, the Confederation of Zimbabwe Industries (CZI) said the narrowing premium was driven largely by a 3,7 percent depreciation of the ZiG on the official market during June.

During that period, the parallel market exchange rate remained largely unchanged, reducing arbitrage opportunities that have historically fuelled speculative activity.

Zimbabwe’s influential industrial lobby said in the report that the stability of the parallel market rate reflected prudent liquidity management by the Reserve Bank of Zimbabwe (RBZ) and improved availability of foreign currency through formal channels.

This has significantly contained speculative demand for the local currency, according to the Reserve Bank of Zimbabwe’s Snapshot on Recent Monetary, Currency, Price and Financial Development for the second quarter of 2026.

Foreign currency receipts remained robust, consistently covering external payment obligations while yielding a significant surplus, thereby creating capacity for the build‑up of foreign currency reserves to cover the ZiG.

The foreign currency surplus averaged US$569 million in the first half of 2026, providing liquidity to support domestic economic transactions.

For the period January to June 2026, total foreign currency inflows amounted to US$10,72 billion, against total payments of US$7,3 billion.

“The exchange rate premium continued to narrow into June 2026, driven by a 3,7 percent depreciation of the ZiG on the official market while the parallel market rate remained stable,” CZI said.

The trend suggests that the official exchange rate has been gradually aligning with market fundamentals, reducing distortions that previously encouraged businesses and individuals to source foreign currency outside formal channels.

The sustained stability of the parallel market rate over recent months also points to improved confidence in the foreign exchange market and a reduction in speculative trading.

The business lobby, however, cautioned that sustaining the gains would require continued efforts to improve the convertibility of the ZiG, maintain disciplined monetary policy and strengthen market confidence.

According to the CZI, month-on-month ZiG inflation edged up marginally to 0,6 percent in June from 0,5 percent in May, remaining below the one percent threshold and pointing to continued price stability.

The organisation said the low inflation environment provides businesses with greater certainty in pricing, budgeting and investment planning despite isolated increases in selected products and services.

The report noted that increases in electricity tariffs, information services and motorcycles were among the major contributors to the slight monthly increase in inflation, with electricity costs carrying broader implications for production and service delivery because of their importance as a key business input.

Annual ZiG inflation also rose modestly to 4,7 percent from 4,4 percent in May, remaining within the Government’s policy target of no more than five percent.

CZI said although inflationary pressures were gradually becoming more persistent, overall price growth remained relatively low by historical standards.

The report identified photographic equipment, fruit, sewerage collection services and fuels and lubricants as the largest contributors to annual inflation, highlighting the continued impact of global geopolitical tensions on selected imported goods and services.

The US dollar segment of the economy also recorded encouraging developments, with month-on-month inflation easing further to 0,1 percent in June from 0,3 percent in May, reinforcing broader macroeconomic stability.

However, annual US dollar inflation increased to 3,1 percent from 2,8 percent, extending a gradual upward trend that began earlier this year.

While still modest, CZI warned that continued increases in annual US dollar inflation could exert pressure on wage negotiations and labour costs for businesses if the trend persists.

CZI also warned that despite the positive exchange rate developments, inflation risks remain, particularly from global commodity price movements, energy costs and regional supply disruptions.