Friday, March 31, 2023

Zimbabwe’s central bank dribbles with interbank market

HARARE- The Reserve Bank of Zimbabwe (RBZ) suspended, then reinstated the trading of foreign currency on the interbank market in a last ditch attempt to halt the depreciation of Zimbabwe’s battered dollar.

In a memo to banks Wednesday morning, the RBZ ordered banks to revert to old Z$30 000 per US$ and discard the interbank rate which had seen the greenback trading at Z$6.9 billion per unit.

“They didn’t state the reason for the suspension,” a banking executive said Thursday.

But in a sensational u-turn, the central bank wrote a memo in the afternoon urging banks and money transfer agencies to continue with the interbank trading but urged them “to be ethical in their dealings”.
This was construed by banks as offering rates which are slightly higher or lower than previous day’s trading, executives said Thursday.

Banking executives said the memo from the RBZ had caught them unawares and some banks reduced the rates they were offering to the public. For instance, Kingdom Financial Holdings, which was offering Z$6.9 billion per US$ on Wedndesday, was offering Z$7 billion on Thursday.

RBZ governor Gideon Gono floated the exchange rate on 30 April when he announced the first quarter monetary policy statement in the first step to liberalise the foreign exchange market.
However, Gono kept the Z$30 000 per US$ exchange rate for government.

Since 30 April, the Zimbabwean dollar has depreciated from Z$160 million per US$ to $7 billion on Thursday.
Observers said Wednesday’s premature move by RBZ is an indication that the central bank, in carving in to pressure from political players who have rapped liberalization, the exchange rate for fuelling price hikes ahead of the 27 June presidential election run off.

Zanu PF’s Robert Mugabe faces off against Morgan Tsvangirai of the MDC in the historic elections, the most significant since independence from Britain in 1980.

Since the floatation of the exchange rate, prices have more than quadrupled in the past month as companies adjust prices to daily movements on the interbank market.

Analysts say the suspension and reinstatement of interbank trading shows that the monetary authorities were in panicky mode as the depreciation of the local currency has been alarming.

“They (central bank) are panicking. They don’t know what to do,” said Dr Daniel Ndlela, an independent economist.
He added: “There is no confidence in the market. Conditions prevailing do not stabilise the local currency.”
Wednesday’s premature decision by the central bank took the market by surprise as interbank trading had overtaken the black market by offering higher rates.

For instance, while banks were offering Z$6.9 billion per US$, the black market was trailing and offering Z$6.5 billion for the same unit.

Zimbabwe’s foreign currency shortage is in its 10th year and has shown no signs of abetting. The country’s hitherto foreign currency earner- agriculture- is still to pick up after the devastating land reform programme in 2000. The mining sector has failed to capitalise on the metals boom on world market due to undercapitalisation.
Analysts say the central bank is now in a fix on how to handle the depreciation of the local currency.

“If they stop it (interbank trading), there will be chaos, if they don’t stop it, the chaos will continue,” Dr. Ndlela said.


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