The country’s main industrial lobby group, Confederation of Zimbabwe Industries (CZI), says it is engaging the government in order to find a solution to the deteriorating exchange rate, a situation that is threatening the strong rebound in economic activity.
The industry body in a statement said the local currency is now in real peril and urgent and well considered policy measures must be implemented by the authorities aimed at bringing back confidence into the currency markets.
“The economy is clearly in recovery; many businesses are recording growth and initiating expansion projects as noted in our quarterly surveys.
“We have enjoyed an excellent harvest and significant progress has been made on infrastructure projects.
“However, the economy is also experiencing “growing pains”. The strong rebound in economic activity is now threatened by the unfolding instability in the currency market,” CZI said.
The industry representative body said it is pleased with the willingness of the authorities to engage seriously with CZI and other business member organisations in order to find a solution to the rapidly deteriorating exchange rate situation.
CZI noted that the instability has been primarily driven by an increase in money supply and the arbitrage windows that policy seems to continue to create.
“The pressure on the forex market has been made worse by long delays in settlement at the auction. This instability in the currency has prompted an aggressive administrative response from the authorities that, if continued, will send the economy into a hyperinflationary tailspin destroying all the gains of the previous 12 months,” it said.
“What has facilitated the economic rebound is access to foreign exchange for the productive sector through official channels and in our initial engagements with the Reserve Bank of Zimbabwe we proffered and they indicated that they would implement an action plan that will result in the restoration of stability,” CZI noted.
It indicated that the key elements to bring back the stability include ensuring that bids at forex auction are settled within two weeks and the system abide by Dutch auction regulations that higher bidders are allocated in full.
“This will allow supply and demand to play its full role at the auction and make it a true price discovery mechanism and further tightening of monetary policy,” reads part of the statement.
CZI also indicated that the RBZ should consider temporary reduction of the total amount to be allocated at the auction market to about $25 million or less over the next three weeks while clearing the Auction backlog and adopt a first in first out (FIFO) method in clearing the backlog.
“In the interest of fairness, those bids that have been waiting in the queue for longer should be settled first before new bids as a way of enhancing confidence among all the players in the market,” said the report.
On further tightening of monetary policy, CZI noted that the RBZ has already indicated that monetary policy will be further tightened and this is a vital additional measure to support the other measures that the central bank has committed to taking.
“It is imperative that these measures are implemented without further delay and strong signals are sent into the market that the auction will indeed become a true auction. These will significantly undermine the parallel market,” CZI said.
CZI in the statement said Zimbabwe has come a long way to the stage where inflation is down and the economy is accelerating.
According to CZI, the aggressive administrative response from the authorities, if continued, will send the economy into a hyperinflationary state, destroying all the gains of the previous twelve months.
At the last auction, the Zimbabwe dollar traded at $88,55 against the United States dollar, way below about $170 on the black market.
Two weeks ago, dozens of people and some company executives were arrested for violating the exchange rate rules and regulations.