Consumer prices have largely stabilised since June, a result of an intensified clampdown by the Reserve Bank of Zimbabwe (RBZ) on illegal foreign currency trading and the setting up of a forex auction system.
The RBZ did away with the interbank foreign exchange market which fixed the US$-local currency rate at 1-25. In its place now is the weekly auction at which market forces influence the exchange rate. On that market, foreign currency is made available and buyers bid for it. At the latest auction yesterday, total bids were US$19,7 million, US$18,5 million was allotted and the weighted average rate was US$1 to Z$80, 46.
This means that the exchange rate up to the next auction on Tuesday next week will be US$1 to Z$80,46.
Apart from the foregoing, the central bank suspended agent and bulk payment mobile phone lines which were being abused by some to buy and sell foreign currency outside the formal market thus contributing to the constant weakening of the local unit and constant price increases.
The bank also enforced a limit up to which ordinary people can transact on mobile money platforms. No person can use their mobile phone to transact more than $100 000 monthly on EcoCash, TeleCash or OneMoney. Merchant transactions were suspended except for receiving payments for goods and services as well as payment of utilities (water, power and airtime) but limited to $5 000 per day.
Furthermore, the apex bank designated ZimSwitch as the sole national payment switch to which all the three mobile money platforms must connect.
Because of these measures, the formerly raging forex parallel market has been tamed, with rates stable. Street dealers have told us that their business has markedly slowed as corporates who were their largest customers now choose to buy foreign currency at the auction instead of taking the big risk of hiring them. This is also because of the upper limits imposed on the sum one can transact on mobile platforms and the suspension of agent lines.
Happily for the consumer and the business sector, prices of various goods and services and procurement costs have stabilised.
On Monday, Delta Corporation lauded the auction system for improving access to foreign currency.
“The business will benefit from the improved access to foreign currency through the new auction system and domestic sales in foreign currency,” said Delta in its business update for the first quarter ended June 30.
“The policy changes to allow use of FCA free funds to settle domestic transactions and the introduction of the foreign currency auction system is expected to improve access to foreign currency to meet operational requirements and to settle legacy debts.”
Delta’s endorsement of the new foreign currency trading platform is encouraging. If a company as large as Delta, which needs a lot of money to finance importation of raw materials, spares and so on has had all its foreign currency requirements met thanks to the auction system, that is important. That endorsement must be indicative of the efficacy of the auction system since its launch. It sends positive signals to the market and encourages other corporates to utilise the auction system for their hard currency requirements.
As we have already noted, prices of various goods and services have stabilised as a result of improved access to foreign currency through the RBZ platform as well as strong action against illegal foreign currency trading.
A Ministry of Industry and Commerce report indicates that prices of chickens, economy beef, bath soaps, eggs, flour, vegetables such as cabbages and tomatoes had stabilised. In some cases prices have declined, notably bread. The document says the price of bread which had spiked to $70 beginning of last month has fallen to around $66 per standard loaf. Cooking oil whose price had gone up to above $300 per two-litre bottle has declined to an average of $240-$250.
The price of sugar which had gone from $66 per 2kg packet to an average of $200 has now stabilised. Laundry soap whose price was pegged at $52 at the beginning of April had increased to above $120 by end of June and has stabilised at that level. The price of a 2-litre bottle of cooking oil was at an average $185 end of April and increased to $250 by end of June, a level at which it remains.
Consumers must heave a sigh of relief because of these positive developments on a market that had not seen any stability for some two years. They want that stability to continue so that their wages can begin to make sense. Corporates, as we get from Delta’s statement, want the auction system to get stronger so that they can buy foreign currency in a transparent and effective manner instead of having to rely on street runners who can be tempted to divert the money or who can be arrested and their clients’ money confiscated or who can be robbed resulting in the company that hired them losing their money.