Auction result sees tiny change as underbidding banks reform

Herald Reporter

Bankers who had bid too low on Tuesday in their wholesale auction to be allocated foreign currency played safe on the Thursday auction, putting in bids of $4 500 to buy a US dollar, just below the exchange rate of around $4 505, and so all 14 banks who bid for wholesale funds were able to buy.

The top bid remained at $4 580, but the net effect of the $20 rise in the bottom bid meant that the weighted average saw a slightly more expensive average US dollar of $4 517,1359. This was 0,26 percent or just under $12 than the $4 505,4232 seen on Tuesday.

The Reserve Bank of Zimbabwe, in the present situation where the total bids from the banks are well below the pool of money put in place for sale by the Ministry of Finance and Economic Development, has administrative cut-offs of bids that are well below the highest bids. This is to stop banks messing up the system by bidding exceptionally low and then profiteering when they resell the funds at the same rates more normal bidders use.

The very narrow range of just $80 between the top bid and the lowest bid on Thursday, and this achieved without any cut-offs by the Reserve Bank, implies that there is very strong convergence within the banking sector over just what is the value of the Zimbabwe dollar.

As a result it looks as though there is likely to now be fairly stable exchange rates, with just very small adjustments in the weighted average at each auction, and many of these could be like on Thursday when the change is because the top or bottom bid has moved marginally, rather than because there is any serious change in what most banks bid.

The banks bought their second highest block of foreign currency on Thursday since the wholesale auctions began in 7 June, buying US$14 226 060 and taking their week’s purchases at the two auctions up to US22 126 660. Despite these large purchases, there was still unsold foreign currency in the pool and so the price of a US dollar continued to fall from an average of around $4 650 the previous week to an average of just over $4 500 this week.