Reserve Bank of Zimbabwe has let loose the interbank foreign exchange market, shifting away from a rather opaque system of trading and constant interference with the exchange rates oscillations on the bourse, it has emerged.
Allegations are that the interbank market has failed to function effectively because the Central Bank was strongly meddling in its operations, restraining rates from reaching those on the parallel market.
In a statement released on Wednesday, the Bank liberalized selling of USD currency into the interbank market at a rate they so wish, which is likely to be the premium rate on the parallel market.
“Authorized dealers are advised that with effect from 21 May 2019, the interbank foreign exchange market shall be anchored on the willing-seller willing –buyer principle,”
“Under the willing-buyer concept, the seller shall approach an authorized dealer or Bureau de Change in order to sell foreign currency at an exchange rate the seller is willing to sell at. Upon purchase the authorized dealer shall sell the foreign currency to wiling buyer at the rate at which they purchased the foreign exchange plus a margin of up to two percent within 24 hours of purchase,” read the statement.
The development means, the selling of USD has broadened the scope of sellers onto the interbank market via authorized dealers, in a move widely expected to pose serious competition with parallel market dealers.
Analysts have welcomed the development as likely to spell out a reflective picture of the overall market on the interbank trades.
Financial expert, Kipson Gundani believes this is going to cast the final nail on the exchange rate distortions and put the interbank market in a more realistic trading position.
“It’s an acceptance of reality. You will discover that most companies are struggling to sell their products. That tells you a story, that we are fast reaching a plateau as far as the RTGS tradable balances are concerned. What was then pushing the rate on the parallel market in my view was not the interaction between the stock of USD and the quantity of tradable RTGS dollars but rather speculative tendencies,”
“So what this will do is that it will allow foreign currency trading on a more clearer and less opaque system because it’s now formal. It will formalize the informal sector because there are no more caps on the rate. They are no allowing agencies, financial institutions and banks to set their own rates,” said Gundani.
Gundani, however predicts a slump in the exchange rate following this announcement despite it having been on an upward trajectory starting this week.
RBZ Governor, Dr John Mangudya is on record saying the rate is likely to reach a point of equilibrium as the amount of RTGS money on the market will restrict the rates from further ballooning.
“We are expecting some convergence, the black market and the official rate, but I strongly suspect the convergence will happen at a rate much lower than the prevailing black market rate, maybe at around 5.5 to 6 there about. Honestly, there are no RTGS balances in this market if official statistics are anything to go by,” he said.
According to Central Banks statistics, Zimbabwe’s broad money stands at only $ 10 billion, and experts argue that if the exchange rate further stretches, it is more likely to chock, since the market will not be able to sustain tradable RTGS dollars at a higher rate.
The interbank market is currently trading at less than 4.5 RTGS per USD, while the parallel market rate has surpassed the 7.5 mark.