eBusiness Weekly
Kudakwashe Mhundwa
Zimbabwe’s industry remains trapped in the throes of critical foreign currency shortage amid revelations only US$85 million has been traded on the interbank foreign exchange market since the Reserve Bank of Zimbabwe introduced the platform in February this year.
A central bank official said the apex bank was happy about the amount of foreign currency traded on the interbank market since its inception just over two months ago, despite the figures being unable to meet the huge appetite of domestic industry.
The central bank insists though that despite the acutely low volumes of foreign currency that have exchanged hands on the interbank market, volumes would pick up pace as the official rate closes in on rates prevailing on the parallel markets for forex.
However, the worrying issue remains the fact that the amount of foreign currency that has exchanged hands on the interbank forex market thus far remains a far cry from the US$300 million industry indicated it requires to import key raw materials.
Already, industry has accumulated foreign payments backlog due to shortage of forex and has had to rely on the parallel market to source the hard currency it needs to sustain operations.
Despite being touted as the panacea to the country’s acute forex shortage, activity on the interbank has remained largely subdued relative to industry’s demand for foreign currency.
Captains of industry are on record saying the huge disparity between official interbank exchange rate and the parallel market rate was the driver of incessant price increases rocking the economy.
The Confederation of Zimbabwe Industries (CZI) argues that exporters or holders of foreign currency were reluctant to trade much of their funds on the official market because they believe the exchange rate, which opened at 1 USD to 2,5RTGS$ was too low.
CZI president Sifelani Jabangwe revealed this week that as an industry they required as much as US$300 million on a monthly basis for importation of key raw materials.
The acute shortage of foreign currency in the country, forcing industry and importers to use the black market where they buy hard currency at steep prices, has been exerting huge pressures on prices emanating from the foreign currency premiums.
This has spawned rampaging annual inflation, which came in at 66,8 percent in March.
RBZ deputy director for economic research Samuel Tarinda revealed this week, at a wheat pre-planting workshop organised by the Zimbabwe Wheat Board, that only US$85 million had been traded on the interbank since its introduction in February this year.
“I think we are doing well. It’s too early for us to draw very definite conclusions about its effectiveness. We only have a few months that we have tried it and the observations are still few to make conclusions.
“We are happy that since it was launched, close to US$85 million has been traded on that foreign exchange market over the two months, I think it is something that is plausible.
“Yes; there is the issue of the interbank rate, mind you the Reserve Bank does not control the rate, the interbank rate is left to the market to decide; we can come in here and there is the apparent market failure but so far we haven’t seen very big failure in that regard.
“(Admittedly), the parallel rate and the interbank rate are still wide apart, but we believe that the two are going to eventually converge,” Tarinda said early this week.
Thus far, the willing-buyer/willing-seller system on the interbank platform has failed to yield the desired rewards, as most exporters and holders of forex have continued to tightly hold onto their funds.
Market intelligence says the holders of foreign currency are apparently waiting for the official or interbank market exchange rate to rise from the current 1:3,3.
Reserve Bank of Zimbabwe governor Dr John Mangudya on Tuesday this week said the official rate will soon reach equilibrium with the parallel market rate.
The RBZ is on record saying the foreign exchange rate on the interbank market, which was introduced through the monetary policy of February 22, was freely floating, market-based and moving towards convergence with the black market rate.
While the interbank market rate has crept up from its starting level of 2,5 to the greenback in February this year, it remains significantly lower than the illegal market rate.
The Reserve Bank of Zimbabwe listed the interbank exchange rate at RTGS$3,30 against a unit of the US dollar.
Previously, the central bank made allocations of foreign currency for key imports such as fuel, electricity, medicines and drugs, wheat and cooking oil before it liberalised procurement of forex through the interbank; except for essentials like fuel and medicines, which it continues to cater for.
Zimbabwe continues to battle choking shortage of foreign currency due to the fact that it is heavily dependent on imports for most basic goods, essentials, key raw materials and capital equipment due to low domestic productivity in major sectors.
