eBusiness Weekly
Tapiwanashe Mangwiro
The Monetary Policy Committee (the MPC) of the Reserve Bank of Zimbabwe (RBZ) had an ad hoc meeting earlier in the week to discuss ways to combat financial developments prevailing in the country and deliberate on the Ministry of Finance measures.
According to the RBZ governor and MPC Chairperson Dr. John Mangudya, the MPC noted that the prevailing volatility in the exchange rate emanated from both supply and demand side factors.
“The supply side factors reflected the transitory reduction in foreign currency inflows, while the demand factors reflected the sustained value-preservation demand for foreign currency in the economy,” he said in a statement.
In order to complement the measures announced by the Treasury, the MPC resolved to come up with monetary policy adjustments and help arrest the prevailing volatility.
Under the new rules, the central bank will sell foreign-exchange to local banks for onward sale to their clients, in an attempt to establish an interbank market.
Wednesday was the first time the new wholesale auction system was used and saw the exchange rate jump from $3,674 to $4,868 per greenback, setting the exchange rate for transactions in the economy.
With the official rate moving closer to the widely used parallel market exchange rate, exporters will likely welcome the move as they will get a higher value for their surrender portions to the central bank.
Exporters surrender 25 percent of their export earnings to the central bank at the official exchange rate which was previously at a huge discount to the parallel market rate.
Importers, that previously accessed foreign currency at the auction system, at a discount to widely used parallel market rates, will see the cost of foreign currency going up as they now need to pay more of their domestic currency to purchase the same amount of foreign currency needed to import goods.
As a result, the cost of imported goods increases, making them more expensive for importers.as more foreign currency is now required to buy the greenback.
If an importer relies heavily on imported goods and has a significant amount of costs denominated in foreign currency, a currency depreciation can have a significant impact on their bottom line. They may need to adjust their pricing or find alternative suppliers to mitigate the impact of the currency depreciation.
Further, in its Exchange Control Circular No.04 of 2023, the Bank issued operational parameters of the new foreign currency exchange measures.
According to the circular, banks and bureaux de change shall sell all their foreign currency acquired on the wholesale market to their customers to meet international foreign payments within 72 hours of receipts of funds.
“The guidelines for the wholesale Foreign Exchange Auction System shall remain in place as previously advised in Exchange Control Directive RY002/20233,” the circular said.
Analyst Namatai Maeresera said, this directive is there to make sure that banks do not hoard foreign currency for speculative purposes.
“This means banks do not stock up foreign currency and sell it at a later date when the floor price has moved higher, but be able to oil the market with much needed foreign currency as soon as they get hold of it,” Mr. Maeresera said.
Writing on his Twitter account, MPC member Persistence Gwanyanya said the RBZ has adequate foreign currency to mop every usable local currency balance in the economy if the floor price is set at $5000.
“Assuming a floor price of US$1.00: $5 000, all usable bank balances of $219 billion can be wiped away by US$43,8 million. Comforting is the fact that RBZ has the required foreign currency to intervene in the market until stability is achieved,” Gwanyanya tweeted.
Economist Professor Gift Mugano said the measures were good but they came in late and might not have the desired impact.
“The measures are what we needed but they are three years late and are having a more devastating impact on values such as pensions, salaries, including the national budget.
“Also the country does not have the money required, until only the exporters buy in, this will not be sustainable in my view,” Mugano said.
Analyst Tafara Mtutu echoed Mugano’s sentiments saying the system right now cannot fund all the foreign currency needs so the parallel market will always come into play.
“We have seen many provisions and adjustments but it will be tough to get exporters to participate in this and the US$43,8 million being talked about will suffer if they do not come on board,” Mtutu said.
The new exchange laws stipulate that foreign currency on the interbank market is dealt with in a First In, First Out manner.
According to economist Tinevimbo Shave, this is a measure that avoids any fraudulent and malpractices by banks towards the selling of the foreign currency.
“This is a measure which is meant to avoid sabotage by banks to some customers favouring other customers during their administering of the foreign currency acquired by the institutions. This entails that whoever has looked for the foreign currency first will get the money first and avoid preference lists,” Shava said.
Economist Professor Tony Hawkins believes the adjustments are not going to help much as they are a repetition of issues over the past five years.
“The exchange rate surely moved astronomically in the las 48 hours on the interbank market which means we might be witnessing a true willing buyer, willing seller, but this is the third time we have had such a market in five years. It only moves to tell us that the market will most likely not buy it,” he said.
Under the refined foreign exchange auction, the bid limits have been revised to a minimum of US$ 1 500,00 and maximum of US$50 000,00 and this is applicable to both primary and secondary users of foreign currency.
Gwanyanya said this was a way of bringing the informal sector to the party in order for them to participate in the formal channel.
“The widening of Dutch Auction limits to US$1 500 to US$50 000 from US$2 500 to US$20 000 is seen as accommodating the informal sector,” he wrote on his Twitter page.
Gwanyanya concluded on his thread that a return to stability is quite possible basing on the new measures taken.
