Banks Urge Govt To Restore Liquidity Balance
Banks have urged the Government to strike a balance in liquidity management saying the current squeeze is negatively affecting companies that buy foreign currency through banks.
At the forex auction conducted on Tuesday, 04 July, foreign currency bidders only accessed just above USUS$500 000 from the benchmark of US$5 million per week.
Speaking in an interview with Business Times, Bankers Association of Zimbabwe (BAZ) chief executive officer Fanwell Mutogo said that financial institutions have run dry. Said Mutogo:
Liquidity management is essential, but the challenge is to find a balance to keep the economy running.
Yes, we can confirm that ZWL$ liquidity is tight at the moment, however, banks buy forex based on clients’ demands and what it means is that the tight liquidity situation is also affecting companies that buy forex through banks.
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We understand the government’s position as regards the liquidity measures which have been implemented given what was happening in the economy, however, we believe the current tight liquidity situation is an unintended consequence of the measures.
The Confederation of Zimbabwe Industries (CZI) in its latest report, said that the liquidy squeeze will have the unintended consequence of entrenching dollarisation. CZI said:
This [tight liquidity] is expected to foster demand for the local currency and is in line with the calls from CZI over the years for the need to balance between supply-side and demand-side measures.
Although currently the ZWL$ has been mopped out to leave industry starved of the ZWL$, it is expected that the authorities will take this as a way to have an idea about the actual ZWL$ levels that are optimal for the market.
Excess ZWL$ will cause an exchange rate depreciation while a market starved of ZWL$ might also entrench dollarisation and retard growth. It is expected that the authorities will work out an optimal balance soon.
However, authorities have vowed to maintain the recently announced tight monetary and fiscal measures that have starved the market of Zimbabwe dollars.
The measures have resulted in the Zimbabwe dollar gaining ground against the United States dollar in the past three weeks.
Economists have cast doubt on the longevity of the stability and described it as “artificial”.
More: Pindula News
