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Forex Auction System: RBZ Has Been Allotting Money That's Not Available - Analysts

2 years agoFri, 27 Aug 2021 09:05:07 GMT
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Forex Auction System: RBZ Has Been Allotting Money That's Not Available - Analysts

Economic analysts have said there is a growing mismatch between demand and supply of foreign currency on the foreign currency auction system, which means that the Reserve Bank of Zimbabwe (RBZ) bank has been allotting money that was not available.

Kenneth Mareya, an economic analyst and the Zimbabwe Independent, and  Lovemore Kadenge, past president of the Institute of Chartered Secretaries and Administrators in Zimbabwe say the system is now in arrears of about US$200 million. They added:

The delays in allocating the money raise eyebrows and impact confidence in the system.

The challenges which are manifesting now are a clear sign of what many economists have been questioning on the transparency of the determination of the exchange rate since inception.

The odds are pointing to a managed exchange rate compared to the flexible one which the system is portrayed to be.

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If, therefore, the country is using a managed exchange rate it requires the bank to hold some foreign currency reserves to back its currency whenever it depreciates beyond certain rates.

They further argue that the sharp increase in the parallel market rate in the past few weeks which is now hovering at around US1:ZW$160 is a sign that the auction system is now leaving a wider gap of demand in foreign currency, causing demand for the greenback to spike on the parallel market.

The RBZ governor admitted that there is pressure on the demand side of the USD although his strategy is facing its own challenges perhaps due to confidence issues from participating banks and companies.

Inflation is rising as the Zimdollar continues to tumble on the parallel market against the USD. The inflation rate officially stands at 56.4% as of July (last month).

However, the depreciating Zimbabwean dollar and the increase in fuel prices has prompted many economists to anticipate a surge in prices in the next few weeks to come.

They say the RBZ needs to:

  • be more realistic on its official exchange rate as this will allow more funds to be released to pass through the formal channels.
  • revise downwards its retention for exporters to incentivise them.
  • be more vigilant on gold leakages.

More: The Standard

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