Zimbabwe: Forex auctions revitalize economy – RBZ

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The currency auction introduced by the government last year has been key to revitalizing the economy despite the deliberate inflation of black market exchange rates by some unscrupulous companies and traders, the Bank’s deputy governor said. Reserve from Zimbabwe, Dr Kupukile Mlambo.

Speaking at the 2021 Zimbabwe National Chamber of Commerce (ZNCC) annual convention in Victoria Falls, Dr Mlambo said the country has enough foreign exchange to support the economy.

He said the foreign exchange challenge is an eternal problem that has existed since independence with various measures put in place over the years to exploit it.

“We believe that the auction platform we introduced last year has been essential in relaunching the economic recovery.

“We have a very stable foreign exchange pot in the country by the amount we have, we have US $ 1.2 billion stocks and we think US $ 1.5 billion is circulating on it. the market but our economy continues to suffer, ”says Dr Mlambo.

He said the country introduced a conservative monetary framework and Dutch auctions at the height of the crisis last year, meaning the black market is unlikely to thrive in such an environment.

Dr Mlambo said more than $ 2 billion has been allocated to the auction house since June of last year, with around $ 900 million allocated in 2021 alone.

Between US $ 36 million and US $ 48 million are allocated each week for both small and medium-sized businesses and major auctions.

He said the country received between US $ 5 million and US $ 7 million in foreign exchange earnings between January and August of this year, hence the stability of the current account.

“Our monetary policy framework has been perfect, but I agree that we need to tighten it further. The auction room is very active and robust in terms of priorities because we have sectors that we prioritize particularly productive and we allow the consumption sectors to continue the interbank auction.

“If we take what is going on in the auctions and what is going around, you find that the country does not need $ 40 million a week except for the fuel and agriculture sectors because those are these are funded separately, ”Dr Mlambo said.

He said the exchange rate generally responds to certain fundamentals like supply, economic growth, inflation and interest rates, which in Zimbabwe’s case are all healthy and the economy is doing well. .

The government forecast the economy to grow 7.8% this year while inflation fell from 837% to around 50% last month with interest rates now around 40%.

He said that such an environment does not lead to the prosperity of the parallel market that currently prevails in Zimbabwe.

The black market exchange rate in the country has hovered in recent weeks between 1:60 and 1: 200 between the United States dollar and the Zimbabwe dollar.

“Premiums were around 300% and fell to around 30% after the introduction of the auction floor and the black market almost collapsed between July and September of last year before rising again.

“The problems started in March of this year and what’s frustrating is this runaway rate of the black market.

“All of this means that our black market exchange rate follows a random walk process, not fundamentals.

“When we have a random walk factor, it’s like a dog trying to bite its tail.

“Production is increasing in industry with the Zimbabwe Confederation of Industries reporting over 70 capacity utilization and even in our checking account we are getting a surplus,” Dr Mlambo said.

He lamented the abuse of a facility recently made available by the government where people can access US $ 50 per week at exchange offices which had been considered would be useful in improving access to foreign currency for individuals. .

He said that to address the aforementioned monetary challenges, a tripartite meeting was held earlier this week attended by the government represented by the Ministry of Finance and Economic Development and the Ministry of Industry and Trade, commercial banks represented by the Zimbabwe Bankers Association (BAZ) and retailers and manufacturers.

“We must continue to tighten the money supply, accelerate an attractive money market and review our lending rates which currently support speculative borrowing.

“We will streamline the auction system so that it plays its role. Banks have agreed to refrain from any matchmaking that allows outside auctions, and retailers have complained about illegal merchants standing in front of stores and buying US dollars.

“Where there is crime, we must fight it.”

Dr Mlambo said illegal currency traders outside of stores are fueling price and rate hikes. “


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