ZWL devalues on RBZ Auction; official market rate falters to $5 978

By Alois Vinga

THE ZW$ value weakened by a further 23% this week reaching a premium of US$1: ZWL 5 978 amid firm expectations that the volume of  local currency in the economy is set to decline significantly in the coming weeks and ease activity on the exchange rate market.

A trading update released at the close of business this week shows that the official exchange rate depreciated from last week’s ZW$4 868 to the current rate.

Traders being allowed to peg the rates at a range of plus or minus 10% means that they can now use a high of ZW$6 575 against the greenback.

Last week alone, the ZWL tumbled by 43% to close the week at US$1: ZW$3 673 on the Auction platform.

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In the same week the Wholesale Foreign Exchange Auction – a new platform which sells foreign currency to local banks for onward sales to local companies pushed the exchange rate further to US$1:ZWL 4 868.

The latest developments are in line with recent measures employed by authorities to strengthen the effectiveness of the Dutch Auction System by allowing the markets to determine the exchange rates.

To this end, the RBZ Auction is now catering disposing foreign currency to just a few entities and MSMEs with the bulk of US$ trading now being channelled through the banks.

Speaking to NewZimbabwe.com, economist Persistence Gwanyanya who also sits in the RBZ Monetary Policy Committee said this week both the Auction and Wholesale platforms were set to access more foreign currency.

“The current official rate reflects the tight ZWL liquidity position. Out of around ZW$220 billion total usable balances as of last week, after trades on both platforms we closed the week with just ZW$180 billion which is set to go down further in coming weeks.

He said the plans, coupled with quarterly tax collections by the treasury alongside recent measures to allow the purchase of electricity and payment of taxes in local currency are expected to mop up more ZWLs from the market which had ordinarily found their way to the parallel market.

“Going forward, we are therefore likely to see a reverse situation ,while currently the market is characterized by purchases of the US$, they will still run short of ZWL to meet ordinary obligations. This means banks will be in a position to be attract liquidity for wholesale trade and we will be returning to normalcy,” added Gwanyanya.