Tawanda Musarurwa Senior Business Reporter
Fiscal and monetary authorities are working to enhance the effectiveness of the interbank foreign exchange market by taking steps that will release around US$800 million into the market, Finance and Economic Development Minister Mthuli Ncube has said.
The interbank market was introduced this February to normalise foreign currency trading and curb the inflationary parallel market, but official figures from the Reserve Bank of Zimbabwe (RBZ) show that it has only traded US$85 million since its opening.
On the other hand, industry representative body, the Confederation of Zimbabwe Industries has said the sector requires around US$300 million a month, mainly for raw material imports.
Minister Ncube said the Government is working to “fine-tune” the interbank market to ensure that the quantum of US$800 million that is sitting in Nostro Foreign Currency Accounts (FCAs) becomes easily accessible to economic players.
“We introduced an interbank market on the 20th of February and the Governor has been very clear and I repeat his words as well that we are continuing to fine tune that market so that it works efficiently.
“There is foreign currency in the Nostro accounts. There is about US$800 million and we need to make sure that we fine tune the market so that those monies can be released into the market and everyone can access the foreign currency through the interbank market,” he said.
“It is certainly true that business people are sourcing money from the parallel market, otherwise it would not be existing in the first place and they use this for pricing goods and so forth.
“Our argument is, why do it when you have got an interbank market and there is no reason to have the parallel rate where the fundamentals do not support it either in the form of money supply. The current account deficit nor the fiscal position do not support that high exchange rate and therefore, players must move back to the interbank market because we believe that is where the market ought to be.”
The interbank market rate has crept up from its starting level of 2,5 to the green-back to around 3,3, remains significantly lower than the illegal market rates of between 4,5 and 5 to the US dollar.
Monetary authorities have projected that the official rate should reach equilibrium in “three months’ time”, but there are concerns that continued weakening of the local currency is posing inflationary pressures.
“The ZWL (RTGS$) closed April 2019 at ZWL3,26 against the US$; about 7,67 percent weaker from the beginning of the month. The depreciation of the local currency has slowed compared to March 2019 and this is likely due to limited activity on the inter-bank market.
“As a result of limited activity, businesses and individuals are increasingly accessing foreign currency on the parallel market thereby widening the gap between the official and unofficial exchange rates and increasing inflation pressures as retailers pass-on the additional cost of imports to final consumers. Continued devaluation sustains inflation expectations,” said Old Mutual in an economic brief for April.