The Reserve Bank of Zimbabwe (RBZ) has announced a raft of measures meant to rein in the widening gap between the official and parallel exchange rates as the local currency continues to lose ground.
The Zimbabwe dollar has been depreciating rapidly in the past few months on the parallel market to trade at around ZWL$ 140 against the American dollar while the official rate continues to be stuck at ZWL$ 85/USD on the RBZ-run Foreign Currency Auction System.
The Forex Auction System was introduced to allow foreign currency-strapped local companies to access foreign currency efficiently and ease demand that was fuelling the parallel market rates.
In his Mid-term Monetary Policy Statement issued this afternoon, the RBZ Governor Dr John Mangudya said the Bank will lubricate the operations of the Foreign Exchange Auction System and restrict money supply in the economy as part of the measures to curb exchange rate movements.
Widely credited for stabilizing the exchange rate since its inception in June last year, the Foreign Currency Auction System has recently been hampered by a serious foreign currency allocation backlog that has rendered it inefficient.
“The Bank is addressing the gap between the official and parallel exchange rates through tightening money supply, expunging the foreign exchange allotment backlog, increasing the attractiveness of the local currency so that the local currency complements rather than competes with the USD, discouraging rent-seeking behaviour and promote 47 sustainable behaviour and fair play in the foreign exchange market and provision of forward guidance to anchor exchange rate expectations and enhance business sentiment,” said Dr Mangudya.
Monetary authorities are adamant that the parallel market will not continue to push the exchange rate further arguing that it only constitutes about 10 percent of total foreign currency demand.
The Bank could not divulge concrete detail on how it intends to implement some of these interventions but however revealed plans to clear the foreign exchange auction allotment backlog which currently stands close to US$ 200 million.
According to Central Bank chief, measures in place to clear the forex allotment backlog at the auction system includes, “Utilization of the existing letters of credit facilities for the importation of strategic commodities and capital goods in order to lessen the demand on the Foreign Exchange Auction System, Supporting banks to promote financial intermediation to leverage on the current long foreign exchange position of around US$1.7 billion in the banking system and working closely with Government to ensure that some of the foreign exchange balances in the Exchequer Account are utilized to expunge the backlog.”
Earlier this week, permanent secretary in the Ministry of Finance and Economic Development, George Guvamatanga said the foreign currency backlog on the auction system should be cleared in the next 30-45 days.
“We would want to assure the market that within the next 30 to 45 days we will clear the backlog that is there in the auction system. We know what it is and it is very much manageable,” he said on a virtual forum.
The exchange rates gap has been widening since beginning of the year, albeit at a gradual pace before a sharp increase in the past two months owing to increased money supply in the economy, experts say.
Government recently increased civil servants salaries by 50 percent to align with the rising cost of living in the country, a development that was to be reciprocated in the private sector.
