eBusiness Weekly
Kudzanai Sharara
The interbank market that was liberalised a fortnight ago to a managed float, is struggling for traction amid reports that no trades have gone through the system since the announcement of new trading measures by Government.
On March 11, Finance and Economic Development Minister Mthuli Ncube, announced a raft of measures that were meant to stabilise the exchange rate.
The measures included the setting up of a Currency Stabilisation Task Force he chairs.
The Task Force, according to Minister Ncube, is expected to meet once a week to review the conditions in the markets, monitor the behaviour of key variables such as the exchange rate and inflation as well as implementation of the set measures.
Speaking at a press conference held at the central bank, Minister Ncube said the country had not had a transparent and effective foreign exchange trading platform for a long time.
Consequently, official rates have not been effectively determined, while a thriving parallel market has developed, he said.
“To correct this anomaly, an electronic forex trading platform based on the Reuters system is being put in place.
“This platform will allow foreign exchange to be traded freely among the banks and permit a true market exchange rate to be determined.”
However, more than a week after the Reuters trading system went live, no trades have gone through the platform.
Analysts say the new trading system was bound to fail from the word go as Minister Ncube did not make it compulsory for all foreign currency to be traded only on the Reuters platform.
The first mistake, which was pointed out by analysts immediately after the press conference, was to say the Reuters System was to be started by “coalition of willing”.
Market watchers said instead of saying all banks are “invited to join” Minister Ncube was supposed to be decisive and make it categorically clear that no bank will be allowed to trade foreign currency away from the Reuters system.
The announcement of the measures was also fraught with controversy with market watchers saying Minister Ncube’s proposed task force, had usurped the RBZ’s function of policing prices and the exchange rate.
“It appears the central bank, which is closer to the banks, has taken a back seat and living everything to the Minister.
“There seems to be no unit of purpose at the moment,” said Walter Mandeya of Trigrams Investment.
Sources with a local bank’s treasury department told this publication that although the interbank rate was on an upward trajectory no trade had gone through “amid expectation that it will continue to rise until an equilibrium with the parallel market rate is reached”.
Another source said authorised dealers were just putting quotes on the Reuters System while conducting deals off market at “real” rates.
“The range bound has been between a rate of 26 and 29 but no trades have been registered,” said the source who cannot be named for professional reasons.
“Banks are still matching buyers and sellers off the market which is probably a sign that the interbank exchange rate is not the real rate.
“As long as the premium between the parallel market rate and the interbank exchange rate is as high as it is, sellers would hold on for a better rate. If the rate narrows a bit, then it won’t be worth taking the risk to trade outside the official market,” he said.
As of Thursday the parallel market rate for the local dollar to the US dollar was between 42 and 45 while the official rate was at 26,11, a 73 percent premium.
A member of the Monetary Policy Committee (MPC) who requested not to be named confirmed that no trades had taken place as of Wednesday this week and said this was of “major concern” and “action is going to be taken”.
“We have had meetings with the Minister of Finance and we discussed this (lack of trading) and we understand there is a complete stalemate in the market. Let me just say a press release and directives to the commercial banks will be issued shortly.”
He said on Friday last week more than US$4 million had traded outside the formal system.
He alleged that banks still feel intimidated by the RBZ which still wants to control the exchange rate instead of letting it be determined by market forces.
“Naturally the central bank should only intervene by injecting money into the market when its dry, but unfortunately it’s not in a position to do that at the moment as it does not have any reserves,” said the MPC member.
He said one of the biggest commercials banks (name supplied), which handle quite a substantial amount of export proceeds, had indicated that its export clients would accept an exchange rate between 31 and 33.
“This is slightly above the cash exchange rate, so if they are willing to trade at those levels then we should see at least US$100 million being traded per month which is a lot of money.”
An executive with a local packaging company said the firm has had to use middle men to charge their products at the alternative market rates.
Minister Ncube did not respond to questions sent to him yesterday.
