Forex auction resumes

Oliver Kazunga

Bulawayo Bureau

THE Foreign Currency Auction Trading System resumes today after the festive season break amid expectations the exchange rate will have less pressure as demand for forex is traditionally low during this time of the year.

The Reserve Bank of Zimbabwe (RBZ) closed the auction on December 21 as most companies had closed for the festive season.

In separate interviews, economic commentators said as the weekly forex auction resumes, they expect low demand for forex.

Less demand for foreign currency means that prices of goods and services will remain constant.

“Usually the demand for forex is traditionally subdued this month as some companies are still on Christmas and New Year holidays shut down,” said a financial market analyst, Mr George Nhepera.

The Zimbabwe National Chamber of Commerce president Dr Tinashe Manzungu said the removal of compulsory requirement to liquidate export proceeds after 60 days will further make the auction system robust.

“Supported by the scrapping of compulsory requirement to liquidate all unutilised proceeds from export operations after 60 days, the forex auction market will be strengthened as we are likely to see more stability on the exchange rate,” he said.

The forex auction system which replaced the fixed exchange rate was introduced at the end of June last year.

The forex auctioning system has enabled the productive sector to access cheap forex compared to buying the forex on the parallel market.

The auction system also stabilised the exchange rate which traded at 81,73 against the US$ for a long time last year.

Meanwhile, RBZ has said it will this year maintain the policy rate for overnight accommodation at 35 percent and the medium-term lending rate for the productive sector at 25 percent.

The policy rate for overnight accommodation reflects the level at which the monetary authority believes interest rates should hover.

But market analysts have stressed that for short-term loans, the 35 percent overnight bank accommodation rate is on the high side and would only be close to the ideal level if banks were extending long to medium-term loans.