Last chance for RBZ | Business Times

The Reserve Bank of Zimbabwe (RBZ) yesterday began selling forex at the market-determined exchange rate through banks as it moves to strengthen the foreign exchange interbank market.

The banks will in turn sell the foreign currency to its customers and the trading margins charged by banks on foreign exchange transactions will be aligned with international best practices.

At yesterday’s wholesale auction, the dollar traded at ZWL$4,868.5152.

The highest bid at yesterday’s wholesale auction was ZWL$5,020.0000 while the lowest was ZWL$4,500.0000.

Amount allotted was US$11,180,000.00. Of the 19 bids received from banks, 10 were allotted.

The selling of forex at the market-determined exchange rate is meant to ensure that the interbank forex market is the primary source for foreign exchange needs in the economy.

Monetary authorities say the foreign exchange auction system shall continue to operate for meeting smaller requirements for foreign payments and for continuous price discovery.

The liberalisation of the interbank exchange rate incentivises holders of US$ to liquidate their forex at prevailing rate ushering in a robust foreign exchange market which is key to fostering real price discovery and exchange rate stability as economist Gift Mugano said this week.

Yesterday’s wholesale auction results are within distance of the parallel market rates that are above ZWL$5,000.

The central bank’s Monetary Policy Committee also scrapped the 90-day liquidation of forex proceeds to ensure that the interbank forex market is self-financing. The interbank maximum trading limit was raised to US$500,000 from US$100,000.

The scrapping of the 90-day liquidation requirement on export proceeds comes a week after the Treasury had put the measure signalling that the monetary and fiscal authorities are not singing from the same hymn sheet which affects confidence in the market.

The policy flip-flop brings to the fore the now evident “turf wars” between the two authorities which is bad for the economy.

It illustrates that there was zero consultation when fiscal authorities announced the measures.

The main and MSME auctions have been merged under the US$5m per week policy, with bid limits of a minimum of US$1 500 and a maximum of US$50,000.

Distortions and bottlenecks in the forex market have been blamed for the routing of the local currency thereby increasing demand for the greenback for value preservation.

There have been calls for the RBZ to allow the interbank market to properly function and dump the foreign currency auction system, as it was not following the Dutch rules thereby creating arbitrage opportunities.

The problems on the auction systems were worsened by delays in settling the winning bids.

This has seen companies going on the alternative market leading to the sharp depreciation of the local currency.

The dollar was this week trading at above ZWL$5,000 on the parallel market against the ZWL$3,600 on the auction market. The gap is widening by the day.

All eyes will be on how the banks will price the foreign currency obtained from the central bank. Central bank chief John Mangudya said this week that the trading margins charged by banks on foreign exchange transactions will be aligned with international best practices.

After bungling the foreign currency auction system. This is a last chance saloon for the central bank. Any fiddling with the interbank market has disastrous consequences for the ailing Zimbabwe dollar.

 

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