RBZ disburses US$100 m to clear auction

THE Reserve Bank of Zimbabwe has released US$100 million to clear a backlog of foreign currency allocations from previous auctions, revealed bank governor, Dr John Mangudya as it emerged local
supermarket chains are demanding up to $220 for US$1.

The Apex Bank introduced weekly forex auctions in 2020 to enhance foreign currency access by usinesses and individuals, but it usually takes long for successful bidders to receive their allocations, causing exchange rate volatility.

This is also forcing many businesses, including some supermarket chains to openly peg prices
using black markets exchange rates to entice customers to use hard currency.

In an interview with The Sunday Mail Business on Friday, Dr Mangudya said the central bank was
working “flat out” to expunge the backlog that he said was a moving target to achieve stability in
the forex exchange market.

“We need to bring stability in the exchange market and the money (US$100 million) we have
released will substantially expunge a big chunk of the blacklog,” said Dr Mangudya, adding that the
central bank would thrive to achieve the convergence of the two exchange rates to boost
confidence.

The Zimbabwean dollar weakened against the US dollar on the last foreign currency auction on
Tuesday.

The official exchange rate reached US$1: $138,19 up from $134,08 in the previous auction. On the
black market, US$1 is trading at between $250 and $280.

“Our major thrust is on stability and to ensure there is convergence so that we can have a single
exchange rate,” said Dr Mangudya. “This will dampen exchange rate volatility.”

Many businesses, seeking foreign currency are either using black market rates to entice customers
to spend forex or offer huge discounts for U.S dollar purchases.

A mini survey by this publication reveals leading supermarket chains including OK Zimbabwe, Pick
n Pay and Food World are using rates ranging between 200 and 220.

The Retailers Association of Zimbabwe (RAZ) cited lack of access of foreign currency, delayed
allocations to the value chains and speculative tendencies among retailers as major reasons why
businesses were charging prices using black market rates.

“But while there might be some gaps, we encourage businesses not to participate on the parallel
market to defend local currency and promote its usage and circulation,” Denford Mutashu, the
president of RAZ said in an interview.

He said while clearance of the backlog was critical, there was need to create other paths of sourcing
foreign currency to reduce traffic to the auction market, he said.

The foreign exchange auction system, which is now in its second year, continues playing a critical
role in bringing transparency, inclusivity and stability in the trading of foreign currency in the
economy. As at 31 December 2021, the central bank conducted 77 main and 71 SMEs auctions from
its inception on 23 June 2020.

In 2021, US$1,97 billion was allotted, representing 97 percent of total bids submitted to the
auction.

This amount represents around 30 percent of total foreign payments processed by banks in 2021,
according to the Reserve Bank. The share of allotments of the SMEs auction to total allotments
grew from 8 percent in first quarter of 2021 to 19 percent in the fourth quarter of 2021.

There was a marked increase in the number of participants on the auction system as applicants
rose from about 500 at the beginning of 2021 to reach a peak of just over 2 000 by year-end. The
auction system has provided essential liquidity to key productive sectors of the economy, leading
t0 enhanced capacity utilisation and significant import substitution.

Most of the auction allotments went towards imports of raw materials, machinery and equipment
as well as other consumables for industry, the central bank said.-eBusiness Weekly