Finance

Govt in new strategy to stabilise exchange rate

NDAMU SANDU/ LIVINGSTONE MARUFU

The government has come up with managed float exchange rate system among other host of measures to stabilise the exchange rate and bring down inflation as the local currency tumbles on the parallel market.

The Zimbabwe dollar, which was reintroduced last year after government abandoned the multicurrency regime, has been depreciating against the greenback pushing up prices of basic commodities.

The development comes after the recent exchange rate volatility which spiked to unsustainable levels of 1:38.5.

Finance and Economic Development minister Mthuli Ncube said the government has come up with a currency stabilisation taskforce to stabilise and lower the exchange rate.

He said the taskforce will be led by Finance ministry and will be composed of members from the Reserve Bank of Zimbabwe Monetary Policy Committee and Presidential Advisory Council which will meet at least once a week to review the conditions in the markets, monitor exchange rate and inflation.

“Zimbabwe has had no transparent and effective forex trading platform for a long time; consequently official rates have not been determined while a thriving parallel market has developed.

To correct this anomaly, an electronic forex trading platform based on the Reuters system is being put in place,” Ncube said.

“This platform will allow forex to be traded freely among the banks and permit a true market exchange rate to be determined.”

He said bureaux de change will also participate on this platform through their authorised dealers and trading rules of the bureaux are also being liberalised so that they can conduct all wider range of transactions.

The RBZ will continue to be a significant player in the market and providing liquidity to stabilise the exchange rate where necessary and this mechanism will be immediately operational, Ncube said.

All forex requirements will be available through the interbank market which will use a marketdetermined exchange rate.

All banks will be invited to join and market will be started by “Coalition of willing” and trading rules for the functioning of this market have already been agreed to with banks being market makers.

Banks will charge the bureaux de change very thin margins on transactions which are routed through them as the Authorised Dealers.

He said bureau de changes are to be immediately liberalised as per RBZ rules which are ready for implementation.

Bureaus will be market takers who can trade forex at +/-5% of daily forex fix and will have a minimum of US$20 000.

Under the new rules, RBZ shall monitor exchange rate daily and intervene when necessary and shall release forex into the interbank market based on a well-defined forex stabilisation policy.

Ncube said the new supporting measures relating to money supply, liquidity management and interest rates will also be put in place.

“To support the success of the new forex management system, the following measures are going to be put in place: it should be noted that all these measures are part of our dedollarisation road map which will be in a phased but time bound manner,” he said.

“Government is cognisant of the fact that unrestrained increases in money supply are one of the fundamental causes of inflation and the depreciation of the exchange rate.

Indeed, hyperinflation prior to 2009 was caused precisely by this factor.” Treasury will buttress the managed floating exchange rate by maintaining cash budgeting framework to minimise fiscal deficit.

This comes after Treasury recorded a cash surplus of ZWL$3bn up to February.

Ncube said Treasury will project revenue and expenditure for the full financial year and announce its Treasury bill issuance calendar.

Under the new thrust, RBZ will also terminate the gold incentive facility once the Reuters system becomes fully functional.

It will also introduce minimum interest rates on all deposits, including trust accounts underpinning mobile banking wallets, to incentivise savings and encourage the holding of the domestic currency.

RBZ governor John Mangudya said inflation has some pass-through effects to the exchange rate hence there is need for a collective effort to ensure its stability.

“The policies announced by minister Ncube will tackle inflation and stabilise the exchange rate and ensure that the effects of exchange rate and inflation are kept under watch in the economy,” Mangudya said.

“We are capacitating the bureaux de change to ensure that they participate in the interbank trading platform through formal banking channels.”

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