'Bond note loses half its value'

'Bond note loses half its value'
Published: 12 September 2017 (919 Views)
The value of bond notes has gone down by more than 50% on the parallel market, showing rising inflation remains on course a local financial research firm has revealed.

Research firm, IH Securities said the high demand for foreign currency required to effect payments for goods and services sourced externally is what has contributed to the bond note depreciation.

"Bond notes have fallen sharply in their value, stirring a wave of massive price increases, especially of basic goods. The high demand for foreign currencies required to effect payments for goods and services sourced externally has seen the value of bond notes declining by as much as 50% of the currency black market," IH Securities said.

"A transfer now attracts a 48% premium, while cash transactions for smaller denominations range between 8% and 9,5% depending on the currency involved. As a result, prices of basic consumer goods have gone up by between 20% and 50%, as companies and retailers pass on the higher costs to the ordinary consumer."

Bond notes were introduced in November under the $200 million export incentive facility guaranteed by the African Export-Import Bank. Its entry into the market has pushed out the dollar from circulation.

The hard currency stock has seen a decline due to lack of foreign investment and sluggish growth in exports.

Companies and retailers have been forced to turn to the parallel market to source cash to expedite foreign payments to suppliers.

Foreign suppliers had threatened to pull the plug on local firms due to delays in making payments. Some suppliers are threatening to cancel credit terms for local businesses.

Some cash dealers told NewsDay that bond note premiums were indeed on the rise, but depended on the method of transaction used.

If a person used real time gross settlement or EcoCash transfers, the premium ranged from 25% to 50%, while for hard cash the range would be between 20% and 30%.

As a result of the high premiums, companies and retailers are forced to recover the costs of the premiums by increasing the prices of basic commodities thus increasing the rate of inflation.

In July, the International Monetary Fund found that, combined with the trade controls, the premiums led to an uptick in inflation, which increased the quarterly annualised inflation rate to 3,4% in March 2017.

Economist Kipson Gundani said the prices of basic commodities were on the rise.

"Yes. There is a price increase. Actually, even the inflation rate is confirming that because we are now in the upper region of 3% officially and according to IMF estimates, by the close of the year they are estimating it will be around 7%. I think that is actually being conservative," he said.

"… you discover that this country is still import-dependent and we import using United States dollars which are being found at that premium on the black market and that premium is being passed on to the final price."

- newsday

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