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Sikhulekelani Moyo, [email protected]

THE Reserve Bank of Zimbabwe (RBZ) has allotted US$11,2 million to bidders under the newly introduced wholesale foreign exchange auction, which commenced on Wednesday.

The platform has already pushed the exchange rate to US$1:ZWL$$4 868 as the local currency continues to shed value from Tuesday’s rate of US$1:3 673 at the old auction system.

As part of the reforms, the RBZ’s Monetary Policy Committee (MPC) met on Tuesday and came up with additional interventions aimed at ensuring that the interbank forex market became the primary source for foreign exchange needs in the economy.

The latest development overtakes the auctions that have carried the burden for just under three years since the middle of 2020.

In an update yesterday, RBZ said there were 19 bids from the banks amounting to US$12, 993 million. All the bids were accepted but 10 were allotted.

The latest wholesale platform has been adopted to allow financial services institutions to sell foreign currency on the interbank market through commercial banks.

The move is meant to enhance access to foreign currency through banks while the previous foreign currency auction system has now been limited to US$5 million a week with transactions between U$1 500 and US$50 000, largely in a price discovery process.

Economists have for a long time recommended that the Government liberalizes the exchange rate to curb speculative behaviour on the parallel market, which has tended to cause price distortion.

It is hoped that the widening of the formal exchange rate would narrow the disparity with the parallel market rate and that this, aided by tight controls on the money supply, would somehow stabilise inflation and restore consumer purchasing power.

In taking measures to address issues affecting the economy, the MPC noted that the prevailing volatility in the exchange rate emanated from both supply-side and demand-side factors.

The central bank said the supply-side factors reflected the transitory reduction in foreign currency inflows, while the demand factors reflected the sustained value-preservation demand for foreign currency in the economy.

Thus, in order to ensure that the interbank forex market is self-financing, the RBZ said the 90-day liquidation requirement on export proceeds will fall away and the current interbank maximum trading limits shall be reviewed upwards from US$100 000 to US$500 000, consistent with the current auction limits.

-@SikhulekelaniM1

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