eBusiness Weekly
Africa Moyo
The obtaining economic fundamentals do not provide for a huge demand for foreign currency and a spike in the interbank market rate, according to Finance and Economic Development Minister Professor Mthuli Ncube. Prof Ncube said while Government has no appetite to be involved in determining the interbank rate, preferring to leave that to market forces, there was no need for a higher rate.
On Wednesday, the interbank rate was 1:3,0396, compared to 1:4,3 on the parallel market. The interbank rate has risen steadily from the 1:2,5 it started on in February.
Prof Ncube said Government is currently running a monthly surplus, implying there is no creation of money, while money supply growth has also dropped substantially.
Further, Prof Ncube said both industrialists and individuals do not have significant sums of RTGS dollars to spark a meaningful demand for foreign currency, which in turn could push up the rate.
This comes amid reports that some exporters are holding onto their forex, waiting for the rate to rise to about 1:4.
Said Prof Ncube: “I think if you look at the fundamentals at the moment, they are not supporting a high rate. What do I mean by that? Number one; on the fiscal front, we have been running a monthly surplus, so the budget deficit is actually a surplus so it doesn’t really contribute to money creation; on the contrary, money supply growth has dropped substantially.
“Number two; it is the money supply growth itself. Money supply growth is not heading up there so really, there is no pressure on the rate in terms of the domestic demand.
“Three, if you look at the market right now; players, industrialists and individuals, are short of domestic cash. So where is the demand for foreign currency coming from, if we are short of domestic cash? So 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.”
Prof Ncube added that with the tobacco selling season having just started, the country should see increased inflows of US dollars. Prof Ncube said he cannot say what the rate should be given that it has to be market determined, but said; “What I can say is the rate cannot be too high because the demand for forex does not justify it”.
Industrialists on interbank market
Some industrialists have claimed that they have not accessed foreign currency on the interbank market since its introduction in February following pronouncements in the 2019 Monetary Policy Statement.
The manufacturers say banks always say they have no money, prompting economic commentators to opine that exporters were clinging on to their funds awaiting a “decent rate”.
Contributing during the Employers’ Confederation of Zimbabwe (Emcoz) human resources indaba in Kariba recently, an industrialist said he and a number of others, had applied for money through the interbank market, but “had not obtained anything”.
Asked why industrialists were not accessing foreign currency from the interbank market, Prof Ncube said; “I would need to double check, to be honest because obviously that’s an issue that sits under RBZ, but we would want the market to work, we would want them to access funds, this is very important.
“We want a market determined exchange rate, with a clear price revelation and price discovery and Government has said it wants to stay out of the market, and that’s what we have done. Really, it’s a market for the private sector itself.”
Prof Ncube said he would be keen to check with the RBZ, and potentially speak to industrialists to establish their “exact challenge”, and be able to intervene and get the right support to make sure the market works well.
IMF team to offer opinions on interbank
Prof Ncube said he has since invited officials from the International Monetary Fund (IMF) to come and assess how the interbank market has performed so far and how it could be improved.
“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 works,” said Prof Ncube. The team is yet to give its opinion on the interbank
Prof Ncube said the IMF team’s remedy would be basically to say “take a look at the architecture” of the interbank market.
The advice would help the country to strengthen it, while at the same time assisting in financing the market to “make sure that it works (and) it becomes a credible market”.
Said Prof Ncube: “The IMF has already said they are in support of the reforms in the Monetary Policy Statement that was announced. So the issue now is that we want to strengthen it to make sure it works and I am inviting them to give us that technical support and they will be doing that over the next few weeks. Then as we do that, they will engage me and the Governor (of the RBZ Dr John Mangudya); then we should be able to follow through that advice.”
Despite the earlier challenges as cited by industrialists, the interbank is touted as a solution to prior issues pertaining to forex rates.
