Auction rate stays steady

Herald Reporter
The exchange rate remained stable in yesterday’s auction, shifting from $83,9827 to $83,9830 a change of three hundredths of a Zimbabwean cent, with the main point of note being a record allocation on the SME auction of US$3,233 million.

The allocation on the main auction of US$32,06 million was mid-range for what has been seen this year.

A total of 521 bids, 292 on the main auction and 229 on the SME action were ruled as valid, and all these valid bids were allotted in full, as has been the case for some weeks now.

Another 118 bids, 59 in each auction were ruled invalid.

Invalid bids come from bidders who have not completed the paperwork for previous imports and exports by deadline, are asking for more forex when they have not spent their own, and are bidding to buy forex to buy goods or services not on the two import priority lists.

Bids in both auctions ranged between $82 and $87, again the range seen in recent auctions.

As always, raw materials, at around US$14 million, dominated the main auction, taking about 43 percent of allotments with machinery and equipment in second place at US$5,3 million, another 16,5 percent. The wide range of other allotments totalled the remaining 40 percent.

In the SME auction, raw materials still lead the pack, with US$933 000, around 29 percent. But as has now become the norm consumables, which includes things like spares and tyres, come in second with US$608 000.

The difference shows the greater role manufacturing plays in the businesses that bid for the large sums, while the service industries tend to loom as more important in the SME sector although there is a strong production thread.

Since it signalled in January that bids under $82 were no longer acceptable, tightening the bid band, the Reserve Bank of Zimbabwe has made no signals to the market, allowing pure market forces to operate.

Those who feel the auction rate should be rising to match the black market rate, and accuse the RBZ of manipulations, forget that the auction market is a lot larger than the black market and is driven by the productive sector.

The priority lists mean that inessential luxuries cannot be funded from the auctions, which will always thus generate a small premium in the black market, and capital transfers in the official systems need complex approval procedures rather than someone with a suitcase of banknotes or a bunch of charged money cards.

The likelihood is thus that a small premium will probably always be in place, regardless of what the auction rate is found to be after the bidders have made their offers.