Dollar rises 45 % - in Zimbabwe

Thursday, May 19, 2005

This item found on Bloomberg shall not be construed as an awkward comparison for what happens to a currency that gets devalued on a long term basis. Zimbabwe certainly has a host of uncomparable problems due to gross political errors. But hey, interest rates rise and the currency still needs to get devalued in order to keep the last remainders of foreign direct investment in the country!?
Monitoring one of my darlings in the commodities sector, Australian platinum producer Aquarius Platinum (domiciled in tax friendly Bermuda), and its recovery from the 52-week low, I am still amazed how fast monetary political decisions can translate into share price movements.
From the Bloomberg dispatch:
Zimbabwe devalued its currency by 45 percent (TPI notes: the dollar has devalued against the Euro about the same) and increased the subsidized prices it pays exporters to ease foreign exchange shortages and boost production as the economy faces its sixth year of contraction.
The Zimbabwe dollar, which is set by the central bank at bi- weekly foreign exchange auctions, was adjusted to 9,000 per US dollar from 6,200, central bank Governor Gideon Gono said today in his monetary policy review in the capital, Harare.
The devaluation will boost the earnings of Zimbabwe's main export industries of tobacco and mining, helping to ease shortages of foreign exchange needed to pay for food and fuel...
Gono also increased the price paid per gram of gold to 175,000 Zimbabwe dollars from 130,000. Gold production declined 16 percent to 4.27 metric tons in the first quarter as industry costs increased. Johannesburg-based Metallon Corp. is the biggest miner of Zimbabwean gold.
The central bank had allowed the Zimbabwe dollar to depreciate by only 27 percent in the year through April, while consumer prices leaped 129 percent over the same period.
Gold producers had called on the central bank to cut the currency to 12,000 per dollar, or for the government to increase the guaranteed price per gram by 62 percent to 210,000 Zimbabwe dollars.
David Brown, finance director at Impala Platinum Holdings Ltd., the world's second-largest platinum producer, said May 17 that the company may review expansion plans if the central bank didn't devalue the currency. The southern African nation has the world's second biggest deposits of platinum, the price of which has increased 31 percent in the past two years.
Gono raised the benchmark overnight interest rate to 160 percent today from 95 percent in a bid to slow inflation, which he forecast would fall to between 50 percent and 80 percent by the end of the year. The economy will expand between 2 percent and 2.5 percent from an earlier forecast of between 3 percent and 5 percent, Gono said. The IMF expects the economy to contract 1.6 percent this year.


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