The country formally moved to adopt a currency weighted consumer price index as the official measure of inflation to reflect the dual currency structure. According to monetary authorities, 75% of domestic expenditure is now forex denominated and as such blended inflation will aptly reference trajectory of the economy. Month-on- month inflation in the first quarter declined from 0.7% in January down to 0.1% in March, trending below the forecasted blended average of 1.5% average in 2023. Annual inflation has also taken a disinflationary path easing from 101.5% at the start of the year down to 87.6% at the end of the quarter. Whilst blended figures present a rosy outlook, the local currency has been under pressure, depreciating 34% within the month and the black-market premium widening to 64% as the official rate trails behind. Notably, civil servants were granted a 100% increase in the ZWL portion of wages within the period possibly hinting to increased money supply.
In light of these developments, the monetary policy committee has resolved to maintain a tight monetary policy but has also enacted effective 1 April; reduction of the Bank policy rate from 150% to 140% per annum and reduction of Medium-term Bank Accommodation (MBA) Facility for the productive sectors, including individuals and MSMEs, from 75% to 70% per annum. In our view, this downtrend in the lending rate may start to restimulate interest for local currency denominated loans. We were witnessing the trend of corporates restructuring ZWL debt to USD debt given the high policy rates.
Going forward, the theme of dollarization within the economy is expected to sustain. Part of the wage reviews for civil servants have applied to the USD portion with the lowest paid worker now earning US$250. We also expect increased bottom of the pyramid liquidity from agriculture as the summer crop marketing season gets underway. Tobacco volumes are expected to go up 8.5% y/y whilst the maize harvest is expected to reach a record 3.1mn tonnes. In our view, consumer facing counters will stand to benefit the most from this increase liquidity driving earnings.
