Forex rate to reach equilibrium — Mangudya


The Reserve Bank of Zimbabwe (RBZ) is expecting the foreign currency exchange rate to reach equilibrium in the next few weeks following trading of the foreign currency auction system on Tuesday.

The development comes at a time when the parallel market exchange
rate has retreated to 1:93 from 1:103 by the end of June due to the introduction of the forex auction system.

RBZ governor John Mangudya told Business Times that the third successful forex auction will push illegal forex traders out of business and stabilise the exchange rate to pave way for economic growth.

“We are using the Dutch Auction System and under the system, each
successful bidder is charged the rate he or she bid and it is always the case
that the highest bidder today will lower the bid and the lowest bid will
increase the bid to reach an equilibrium convergence.

“The auction is designed to enhance transparency in the management of foreign exchange and achieve a realistic market driven exchange rate for the local currency,” Mangudya said.

RBZ foreign currency auction system Tuesday set the exchange rate at
1:65 against the US dollar, registering a 3 % decline when compared to
last week.

The apex bank update on the latest trades shows that US$13.m was
available on the system with the highest bid rate ZW$90 lowest bid
rate ZWL$30 lowest accepted rate ZW$55.

However, the average weighted rate settled at ZW$65.87 registering
3% decline from the figures declared last week.

From the foreign currency available, the manufacturing sector was allotted US$5.6m, retail and distribution US$1.9m, services US$1.8m, agriculture US$1m construction, engineering and electricals US$1m and energy US$575,421.

The figures show that trade volume by allocation is down by 16%.
Economists said the RBZ’s latest measures to halt the collapse of the
local currency as bidders are likely to have gained confidence in the system but need a lot of monitoring to achieve desired results.

The first US dollar weekly auction was held last week Tuesday where
slightly less than 100 bidders participated with total bids of US$11.4m.
The auction brought the ZW/ US$ exchange rate to 57:1 from the
hitherto official rate of 25:1.

Economist Persistence Gwanyanya said the auction system has
the potential to stabilise the forex exchange rate and was hopeful that
the stabilisation of the forex rate will arrest the rampant cost of living and

“So far the system has proved to be successful but we don’t know how
it will go in the next few weeks,” Gwanyanya said.

Confederation of Zimbabwe Industries president Henry Ruzvidzo
said a number of companies have started to get forex since the introduction of the auction system.

“The system offered an opportunity to stabilise the local currency
and the elimination of the major of the exchange rate, consequently we
expect the prices of the basic commodities to stabilise,” Ruzvidzo said.

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