The Sunday Mail
Golden Sibanda
Senior Business Reporter
The country’s biggest business lobby group, Confederation of Zimbabwe Industries (CZI), says the foreign currency auction system has ushered in a “breath of fresh air” following the exchange rate stability and a slowdown in inflation.
Without a proper market-determined exchange rate, prices were being indexed to a constantly changing black market rate, which resulted in soaring inflation.
In its first review and opinion on the auction system that was introduced on June 23 this year, CZI said there were many positive outcomes from the market.
“The positives include stability of the exchange rate on both the formal and informal markets as well as the slowdown in inflation. There has been increased access to foreign currency by businesses,” CZI noted in its comment.
The auction system, according to CZI, can be strengthened by balancing money supply and demand, practicing fiscal prudence and monetary discipline, as well as levying taxes and fees in local currency.
More than US$370 million has been allotted to various import requirements since the RBZ introduced the foreign exchange auction system, helping to stabilise the exchange rate, prices and, importantly, prices.
The auction market now meets a reasonable level of foreign currency needs of a cross section of registered businesses — small and big — that require forex for key imports such as raw materials, equipment and machinery, services and consumables.
There has been a gradual build-up of market confidence since the auction was introduced. The auction rate has stabilised since September 22, 2020, with the US exchange rate now hovering around US$1:$81,3.
The stability has been passed through to prices of basic commodities.
The Reserve Bank of Zimbabwe (RBZ) recently replaced the interbank market with the Dutch Foreign Currency Auction.
Before the introduction of the auction system, Zimbabwe briefly had a fixed rate regime, with the local unit pegged at $25 to US$1. Between February 2019 and June 2020, Zimbabwe experienced a galloping inflation rate caused by exchange rate volatility on the parallel market, limited access to forex and a thriving black market.
Measures introduced by the central bank such as the adoption of the foreign currency auction system and restrictions on the transaction thresholds on mobile money platforms have helped reduce inflation.
Annual inflation fell to 659,4 percent in September, according to the Zimbabwe National Statistics Agency (Zimstat), from 761 percent the prior month.
The annual rate had hit a post-dollarisation record of 837 percent in July this year. — ebusinessweekly.co.zw
