eBusiness Weekly
Business Writer
The Reserve Bank of Zimbabwe`s third foreign currency auction yesterday closed with the exchange rate sliding modestly 3.2 percent to $65,8 against the greenback, as the local unit continues to its search for a true market range.
The number of applications submitted yesterday were 264 against 316 received during last week’s auction, which also saw the value of bids falling from roughly US$18 million to US$15,8 million, while the successful bids also went down to US$13,6 million from about US$16 million prior week.
Yesterday’s auction saw the highest rate come in at $90 to US$1 and the lowest was 30 to 1, although the lowest accepted rate was $55 to the greenback. The central bank said that 92 bids were rejected, possibly for jubilation of bids through dealers.
Authorities have indicated that they expect the market determined exchange rate to guide pricing by business.
The lack of a systematic market led rate determination mechanism had resulted in sustained depreciation of the Zimbabwe dollar, reintroduced last year following its scrapping in February 2009, and skyrocketing prices.
A total of US$13,6 million was allocated to various industries and sectors of the economy through the auction system yesterday, which was opened to the media for the first time.
Various players who have been part of the auction system thus far said they are yet to find any faults in the way the system operates. And the auction has already started to have significant positive impact in the market, after only two weeks of operation, with prices of bread being the first to fall.
Confederation of Zimbabwe Industry chief executive Sekai Kuvarika, said they have been receiving positive feedback from CZI members that have been submitting bids.
“In my view, there is a steady increase in demand of the forex in the auction. Between the auction sessions, you can see the market is responding to this opportunity to procure forex formally,” Kuvarika said.
Contrary to what has been circulating on social media, CZI said the turnaround time has been on average between 24 and 48 hours after the auction.
“What we have received as feedback from companies is that all companies that awarded their bids, their money has been paid and that brings confidence that they get their bids approved as well as early transfers of the money to their accounts. You can see an incremental increase in that the demand is increasing which may mean that the confidence is also increasing,” said Kuvarika.
Critics of the auction have said this could be an attempt to reinvent the wheel but top economist and member of the RBZ Monetary Policy Committee Professor Ashok Chakravati, said circumstances surrounding the current auction are different from the 2004 setup and therefore must not be judged based on that past failure.
“I think we need to understand that the situation in 2004 and today is fundamentally different. In 2004 the RBZ tried to fix the rate but now that is not the case as we have a clear policy which is anchored on free adjudication. There will,” Prof Chakravati said.
He said in 2004 Zimbabwe had no control on the national budget deficit and money supply, which increased pressure on the foreign exchange resource, a situation he said is different from what is presently obtaining.
The RBZ reiterated its commitment to ensure the auction dynamics continue to being determined by forces of supply and demand.
Central Bank Governor Dr John Mangundya, said the auction is a process of price discovery.
“There is no bias because we are allotting at own price, we are using the Dutch auction system.
Everyone who is buying foreign currency is suggesting their own price,” Dr Mangundya said.
RBZ invited foreign currency holders –exporters and NGOs- to join the auction and add to the foreign currency supply.
