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Tawanda Musarurwa
Zimbabwe’s official rate adjusted by 4,6 percent to $68,88 from $65,80 previously, following the conclusion of the fourth foreign currency auction yesterday.
Last Tuesday the rate moved 3.2 points.
The official rate is the weighted average of the auction’s successful deals.
This means the local currency – the Zimbabwe dollar – has eased marginally to trade at $68,88 to US$1 until next Tuesday.
Apparent in the latest auction was a tightening in the range between the lowest and the highest allotted bids, pointing to growing confidence in the new currency trading system that was introduced four weeks ago.
The lowest bid in yesterday’s auction was $40, but the lowest allotted bid was $64,20.
The highest allotted bid was $85, and the total number of bids amounted to 230.
This meant that the number of applications submitted yesterday dropped by 34 bids from last week’s 264.
Bids have been lower than the ‘peak’ achieved in the second auction of 316, but remain higher than the just over 90 bids, which were recorded in the first auction four weeks ago.
The value of total of bids recovered from US$15,8 million last week to US$18,719 million, while successful bids increased to US$15,98 million, up from US$13,6 million last week.
Increasing demand on the auction is indicative of growing confidence in the system.
At least 43 bids – to the tune of $2,731 million – were either rejected or did not get an allotment.
According to the authorities, bids that were not allotted or rejected were due to “duplicated bids, CD1 forms that were not acquitted and high FCA (foreign currency account) balances.”
Firms are allowed just one bid at each auction.
Another factor is that the monetary authorities have been allocating bids according to a top-down model, which means that bidders that bid in very low ranges are highly unlikely to receive an allocation.
Economist and advisor to the Reserve Bank of Zimbabwe Eddie Cross, said although the auction managed to meet industry’s foreign currency requirements, banks are still not coming to the party.
“We are disappointed that banks did not come to the market, again. Foreign exchange supply should not be left to the RBZ.
“We know that banks are trading foreign currency and they should participate in the auction,” he said.
“In terms of today’s (yesterday) auction, we managed to meet all of industry’s requirements, and it’s having an impact. Already you can sense that prices are stabilising.”
Since the first auction, there has been a growing trend of industry participation on the auction system as they seem to prefer to play with banks at mid-rate.
The increasing shift of industry players to the auction system has dried out activity on the parallel market, which has also helped to contain inflationary pressures as firms no longer price their ‘forward price’ their goods and services according to a phantom rate.
Commenting on his Twitter handle, industrialist Busisa Moyo, said the foreign currency auction system should move towards a market-determined rate.
“The auction is still at infancy but needs to gradually move towards a market rate,” he said.
“A framework where demand for Zimbabwe dollars is high – taxes, duties paid in local dollars will create a desire to sell. This framework doesn’t exist at the moment, but it will come.”
In line with indications that at least 70 percent of foreign currency will be allocated to industry, the majority of the hard currency in yesterday’s auction went to raw materials, machinery and equipment. These segments accounted for US$8,63 million.
Retail and distribution accounted (including food and beverages) for US$2,47 million, while consumables (including spares, tyres and electricals) accounted for US$1,41 million, and pharmaceuticals and chemicals accounted for US$1,26 million.
Services (including loans, dividends and disinvestments) accounted for US$900 526, while paper and packaging accounted for US$761 500, and fuel, electricity and gas accounted for US$528 200.
Online Reporter