The spiralling black market rate for foreign currency, resulting in high prices of almost all goods and services, has jolted the private sector to find lasting solutions to the challenges dogging the interbank market.
Government, through the Ministry of Finance and Economic Development and the Reserve Bank of Zimbabwe (RBZ), would also be roped into the inquest of the issues affecting the smooth functioning of the interbank market. The interbank market for foreign currency was introduced in February this year as monetary authorities sought to harness more forex into the formal system to dissuade industrialists and ordinary citizens who cross borders, from seeking funds to operate their businesses on the outlawed parallel market.
But since its introduction, the interbank market has been characterised by more “willing buyers” than willing sellers, amid reports that exporters are not keen to plunge their hard earned cash onto the platform on lower rates. Some exporters say they would be “more willing” to offload their forex onto the interbank market when the exchange rate has “improved considerably”.
The shortage of forex on the interbank market has reportedly necessitated industrialists, particularly those whose businesses are not inclined towards exports, to turn to the parallel market so that they keep the wheels of their factories rolling.
This has unfortunately seen the rate striding to about 1:5 (USD to RTGS$), compared to a rate of 1:3,2645 which prevailed on the interbank market yesterday.
Confederation of Zimbabwe Industries (CZI) president Sifelani Jabangwe told Business Weekly yesterday that it was time the interbank worked as it serves the interests of businesses and consumers well. Jabangwe said it was critical to craft measures that will see the interbank market being the preferred choice for buying and selling foreign currency by exporters.
“As the private sector we want to see how we can make the interbank market functional for the benefit of everyone because we are saying the sellers are private sector and the buyers are private sector, so why is the interbank not working?” said Jabangwe on the sidelines of the Business Economic Empowerment Forum (BEEF) breakfast meeting held in Harare yesterday.
“The interbank is just a platform that allows us to access foreign currency. So we are just going to engage to try and see how we can get that platform operational.
“We are also engaging the Government because the way the (parallel market forex) rates are running is not reflective of what is happening now. The rates should be stable.”
Jabangwe believes that if the economy stops “prejudicing exporters as is happening”, there would be more money available for other manufacturers on the interbank market. But Jabangwe admits that if one calculated the amount of RTGS$ balances held by companies and individuals, against the nostro balances of about US$700 million, the interbank rate should be 1:2,5. He believes a lack of confidence in the market is pushing up the interbank market rate.
Finance Minister Professor Mthuli Ncube recently told Business Weekly that while the interbank fell under the purview of the RBZ, Government wants “a market determined exchange rate, with a clear price revelation and price discovery”.
“Really it’s a market for the private sector itself. What I have done though is, I have invited the IMF to come in and also look at the market and to help us perfect and craft it in a manner that it work,” said Prof Ncube.
The opinion of the IMF on how the interbank market is performing could not be obtained by the time of going to print.
In terms of the interbank market rate, Prof Ncube said while it is determined by the private sector, existing fundamentals “are not supporting a high rate”.
He explained that on the fiscal front, Government has been running a monthly surplus, which does contribute to money creation.
If anything, money supply growth has dropped substantially, said Prof Ncube.
He added that there was domestic demand for foreign currency considering that both industrialists and individuals are short of RTGS$.
“So, where is the demand for foreign currency coming from if we are short of domestic cash? If you look at market fundamentals, they are not pointing towards a higher demand for foreign currency, on the contrary, we should be having a lower demand for forex,” said Prof Ncube.
He also said since more forex is being generated from selling tobacco, there was no reason for increased demand for forex to warrant a high rate, even on the parallel market. Jabangwe said it was critical that a solution to the interbank market challenge is found to turnaround the economy.
“We want to understand from the sellers what their problem is, and from the banks, what their challenge is, then we say how can we get it to work.
“We want to sell. Why should people engage in markets outside of the formal system, which is illegal? People only do that when there is something wrong, so we want to identify that and attend to the cause of the problem,” said Jabangwe.