Volatility clear in compression between the black market rates, and the weighted average auction rates

Zimbabwe Digital News

*NCX Index = 53%*
For the week ending 3 July 2020:
This implies a loss of confidence of 47%.

This week the NCX Index Ticker: Week ending 3 July 2020 came in at 53%.

This implies a loss of confidence of 47% on the Zim$.

The NCX Index applied its first set of variables – and showed its first weekly public movements by recording an improvement on the confidence level – relative to prior week where the NCX Index came on stream at 38% – a 62% loss of confidence on the currency.

“This is reflective of the sudden death of the currency black market, the heavy handed response by the authorities on mobile money platforms, the compression between the black market rates and the weighted average auction rates. The release of the inflation rate by ZimStats will also have an impact on the direction of the NCX index,” Ndlovu said at the briefing of the first counter.

The Zimbabwe Stock Exchange is in limbo after it was arbitrarily closed by government due to alleged regulatory challenges.

Ndlovu said that the closure of the Zim Stock Exchange debacle had caused the stock market index to freeze.

The share prices are rightly frozen hence the gloomy picture one sees on the stock market front. Where the market is closed, investors expect the worst.

Uncertainty, and risk increase. “What it means is that the disparity (spread) between the official rate (auction rate) and the black market rates have narrowed a bit. The official rate and the black market rate are moving towards each other,” he said.

Watching ZimStats

Inflation numbers are not out in as yet, but it will be interesting to see how they come out from ZimStats.

Now, the effect of the unification of the multiple exchange rates and the potential for lower inflation will then cause the currency to strengthen as we go forward.

The situation in Zim is episodic and volatile. It’s difficult to establish a trend line in Zim currently. Irrationality and uncertainty are a given. But at the end of the day, there is very little activity on the ZSE even during good times. The volumes were negligible, he said.

The NCX concluded that the confidence in the Zim$ will translate into a strength. The value of a currency (strength of a currency) was a function of confidence. So as confidence increased, it then translated into currency value (strength).

Comment: Wilbert Bhebe

Congratulations to Colls Ndlovu for a great milestone achieved.

It is indeed a great initiative that addresses real life economic problems. The Ndlovu Currency Confidence Index (NCX Index) is grounded on reality on the ground. It is well understandable to both economists and non-economists.

There is a correlation between the value of a currency and the level of market confidence hence the relationship is clearly explained in this economic model.

The ability to measure confidence can then be used as a metric for price stability. This is an index which should be adopted by our own monetary authorities as they gain insight into how their work links with the expectations of the general public and it also shows the need to harmonise (liberalisation of the exchange rate) the formal and informal sector exchange rates.

Such liberalisation brings about more confidence to the currency hence solving the multiple exchange rate crisis facing Zimbabwe.

As an active participant and member of the Ndlovu Economics group thinktank, I have learnt so much in terms of the construction of indexes and benchmarks that are used in the markets.

Companies will definitely benefit immensely from the NCX Index as they manage their Zim$ denominated portfolios and related exposures especially given the closure of the Zimbabwe Stock Market.

I am an Economics student at Midlands State University. – Zim-Digital-News-NCX-News