RBZ sets up mechanisms to monitor liquidity levels

Tapiwanashe Mangwiro

Senior Business Reporter

THE Reserve Bank of Zimbabwe (RBZ) says it is closely monitoring liquidity levels in the economy to manage any excess funds that could destabilise Zimbabwe Gold (ZiG), and also vowed to address forward pricing behaviour that has contributed to rising exchange rates on the parallel market.

In his 2024 Mid-Term Monetary Policy Review Statement on Friday, RBZ Governor Dr John Mushayavanhu said the central bank and Treasury were meeting weekly to assess the economy’s liquidity situation and implement corrective measures as needed.

“The Liquidity Management Committee comprising the Ministry of Finance, (Economic Development and Investment Promotion) and the Reserve Bank was reconstituted to effectively manage liquidity in the economy.

“The committee meets every week to assess the level of liquidity in the market and determine the necessary level of intervention by way of mopping excess liquidity in the economy,” said Dr Mushayavanhu.

ZiG was introduced on April 5, 2024, with the new currency pegged at 13,56 per US dollar. The rate has remained relatively stable, ranging between ZiG13,2 and ZiG13,8. However, the parallel market  rate has continued to move, widening the gap between official and black market rates.

In an earlier interview with The Sunday Mail Business, Dr Mushayavanhu noted the observed increase in the parallel market premium was inconsistent with current macroeconomic fundamentals.

He said the fundamentals remained strong and supportive of overall economic activity, including the foreign exchange market.

Dr Mushayavanhu said the economy was in a strong position, with foreign currency inflows increasing by 10 percent during the first half of 2024, compared to the same period in 2023.

The surge in export receipts has partly led to a significant increase in the reserves backing the structured currency from US$285 million in April to US$375 million in June.

The central bank chief said the increase in the exchange rate premium was primarily driven by forward pricing behaviour.

“Precisely, the higher parallel market rates are implied in the pricing structures of goods and services, as opposed to the actual trading of foreign currency in the alternative market, where the rates and trades have remained low since the introduction of the structured currency,” he said.

“As such, the Reserve Bank, through the Financial Intelligence Unit (FIU), will continue to deal with the unjustified forward pricing behaviour to minimise the inflationary pressures from speculation and greed, which fuels greedflation.”

Finance, Economic Development and Investment Promotion Permanent Secretary Mr George Guvamatanga echoed similar sentiments during his address at the Zimbabwe Economic Society and Friedrich-Ebert Stiftung breakfast meeting on August 22.

He noted that, while parallel markets are common worldwide, Zimbabwe’s arbitrage levels have reached an alarming level.

Mr Guvamatanga said some local businesses or industries were baselessly pegging their product prices to the parallel market exchange rate, simply following a trend.

“Real effective exchange rate should be driven by fundamentals, not by some random traders that just wake up on WhatsApp and say the exchange rate is ZiG25, and that price is picked up by a CEO of a major company and starts trading at that rate.

“The official exchange rate is determined through the availability of the stock of money sitting at the RBZ, supported by adequate reserves and we can defend our actual rate. You can go to the RBZ, the gold is there and the money is there in the nostro, so we can justify our exchange rate but what is the justification for the parallel market exchange rate of ZiG23 and above?

“This very opaque market is trading less than 5 percent of the total foreign currency in this economy, the rest of that foreign currency is being traded formally. Why should 5 percent (parallel market) of the market determine the price of the 95 percent of the market,” he added.

Several business organisations, including the Confederation of Zimbabwe Industries and the Confederation of Zimbabwe Retailers, have expressed concern over their members’ failure to access foreign currency on the interbank market.

Dr Mushayavanhu, however, dismissed the claims, stating that the bank is ready and willing to intervene if necessary.

The central bank boss said the foreign exchange market was adequately oiled to cater for bona fide foreign invoices.

He said the RBZ had also been strategically intervening to smoothen and clear the market in cases where there were genuine supply and demand mismatches of forex from the regular sources supporting the interbank foreign exchange market.

The central bank, he said, established a Monetary Policy Implementation, Monitoring and Evaluation Committee (MPIMECO) that keeps track of the key indicators to promptly identify emerging risks and ensure timely response by the RBZ.

“The MPIMECO developed a Governor’s Dashboard, which helps to provide early and daily warning signals on key monetary policy and financial sector developments and occasion appropriate and timely application of risk mitigation/management measures by the Central Bank,” he said.

In a bid to enhance transparency and provide clearer insights into monetary policy implementation, the RBZ is set to introduce a series of high-frequency economic indicators.

These indicators are expected to offer the market more immediate and actionable data, allowing for better forecasting and response to shifts in the economic landscape.