RBZ moves on forex auction backlog

BUSINESS REPORTER

The Reserve Bank of Zimbabwe (RBZ) will utilise existing letters of credit for the importation of strategic commodities among a raft of measures to reduce demand on the foreign currency auction system, governor John Mangudya said Thursday.

The measures come amid revelations that companies are taking more than two months to get the money allotted.

In his Mid Term Monetary Policy Statement, Mangudya said the bank has cobbled measures to deal with the residual foreign exchange auction allotment backlog.

He said the bank has put in place a US$150m letter of credit facility with Afreximbank which will see participating banks issue letters of credit to their qualifying clients to “import essential raw materials and other inputs to support the current growth trajectory”.

Mangudya said RBZ would support banks to promote financial inclusion and leverage on the current long foreign exchange position of around US$1.7bn in the banking sector.

He said the central bank is working with the government to ensure that some of the “foreign exchange balances in the Exchequer Account are utilised to expunge the backlog”.

The backlog has seen some companies accessing forex on the parallel market which has seen the gap between the auction and parallel markets widening. While a dollar is trading at 85 on the auction system, it fetches about 140 on the alternative market.

The auction system was introduced last year. A total US$1.72bn was alloted on the foreign currency auction system as at July 27, representing 98% of total bids submitted to the auction.

Mangudya said the bank will reduce the gap between the auction and parallel markets through tightening money supply, expunging the foreign exchange allotment  backlog and increasing the attractiveness of the local currency for it to complement instead of competing with foreign currency.

Mid Term Monetary Policy Statement highlights

• RBZ says Zamco has paid off off its obligations of ZW$1.2bn to Govt ahead of the sunset time of 2025 and plans are underway to wind off its operations in line with section 57A of the Reserve Bank of Zimbabwe Act
• RBZ maintains the bank’s overnight accommodation of 40% and the medium-term lending rate for productive sector of 30% in the short term, in order to control money supply and curb speculation
• RBZ maintains the 5% statutory reserve requirement for demand and call deposits and the 2.5% reserve requirement for time deposits in the second half of 2021.
• Quarterly target for the growth of reserve money for the remaining six months of 2021 remains at 20% to anchor inflation expectations at sustainable levels through controlling money supply and to allow for the necessary accommodation for the growth of the economy
• RBZ maintains cap on the interest rate at which banks can on-lend the proceeds from the Medium- term Lending Facility is also maintained at 10% above the borrowing rate to ensure recovery of the productive sectors of the economy
• NPL ratio was 0.55% as at June 30 against the international benchmark of 5%, reflecting sound credit risk management systems and internal controls