The Reserve Bank of Zimbabwe (RBZ) will raise the bank policy rate to curb speculative borrowing and will also take appropriate measures to ensure the forex auction backlog does not recur as part of measures to address the volatility of the parallel market exchange rates.
At its meeting on August27, RBZ’s Monetary Policy Committee maintained the bank policy rate at 40%.
The commitment by RBZ which was made at Monday’s meeting involving the central bank, the Ministry of Finance and business leaders comes as the parallel market rates spike amid increased demand as the auction system struggles to release the funds allotted.
RBZ also undertook to continue tightening money supply under its conservative monetary targeting framework to ensure that money supply would not be a source of exchange rate destabilisation, RBZ governor John Mangudya said in a statement.
RBZ also committed to accelerate implementation of special attractive money market instruments including exchange rate linked instruments as an alternative investment avenue for local currency to the holding of US$.
Last week, Mangudya announced the introduction of special exchange rate-linked corporate open market operations bills as RBZ tightens money supply in the wake of a rise in annual inflation.
The bills are targeted at corporates with huge local currency balances or those receiving huge payments in local currency, as some of these funds are being used to destabilise the foreign exchange market.
RBZ will also refine and streamline the foreign exchange auction system to ensure that it continues to play its price discovery role in the foreign exchange market, Mangudya said.
The Bankers Association of Zimbabwe (BAZ) committed to ensuring that all bids submitted to the foreign exchange auction are authentic, continued due diligence on all their customers and applications for foreign exchange and refraining from facilitating parallel market transactions through matching.
BAZ also committed to improving efficiency in facilitation of Letters of Credit, enhance reporting of suspicious transactions and promptly implementing regulatory directives on freezing of bank accounts for participants in illicit foreign currency transactions.
BAZ will also promote confidence in the banking sector by clearing the foreign currency backlog promptly and improve oversight on bank overdrafts to ensure that broad money is kept under check.
The Retailers Associations requested the government to level the playing field in their respective operating environments by attending to the menace of foreign currency traders milling outside and around shops and trading areas, identifying and bringing to book funders of foreign currency traders and dealing with informal traders operating without licences and sometimes outside legal or policy parameters.
The retailers said there was need to adhere to expected commitments to implementing provisions of Statutory Instrument 127 of 2021 with emphasis on three focus areas—abuse of auction rules and funds from auction allotments, exchange rate manipulation or currency attacks and non-compliance with the Bank Use Promotion Act.
The central bank, Mangudya said, advised retailers to ensure that discounts could be extended to customers in the normal course of business as long as they are reasonable and in line with best practice and that entities using the official exchange in their pricing system may apply a tolerance premium of up to 10% in line with the operations of bureaux de change.
Mangudya said the manufacturing sector undertook to ensure responsible pricing and to comply with the three focal areas under the SI 127 of 2020.
“The parties unanimously agreed that whilst macroeconomic fundamentals were sound to support exchange rate stability, immediate measures were necessary to contain the movement of the parallel exchange rates. It was noted that the recent volatility in the parallel exchange rates was due to behavioural factors,” Mangudya said, adding the parties “underscored the need to maintain the macroeconomic stability momentum experienced in the last 12 months”.