Nkosilathi Sibanda, Business Correspondent
PRICES of goods and services have of late become stable and this is attributed to the foreign currency auction system which has halted a rise in currency rates that was previously detected by the black market.
The measure, introduced by the Reserve Bank of Zimbabwe (RBZ) in June was put in place to bring calm to the finance sector and create transparency in the management of foreign exchange.
Market speculators who were profiteering through price distortions have had a hard time in trying to beat the official exchange rate, of which the RBZ said was a thing of the past.
The auction system came about to bring sanity in a volatile environment where the pricing of goods and services were at a premium exchange rate.
The Apex Bank replaced the fixed exchange rate system, which had the domestic currency pegged at Z$25 per US dollar, with a foreign exchange auction system.
The current rate stands at 1:82. In the Monetary Policy Statement on Friday, the RBZ said it had noted a marked improvement in transparency in the market.
“The foreign exchange auction system has greatly assisted in improving transparency in the foreign currency market and has facilitated the discovery of a market-based exchange rate.
“This has restrained the speculative pass-through effects of the exchange rate on the pricing of goods and services in the economy.”
The Apex Bank also said exchange rate and price convergence had been achieved.
“In addition, the system has been critical in fostering exchange rate and price convergence over time. The dispersion between the highest and lowest bid rates on the auction system has been converging towards the weighted average exchange rate, while the parallel market premium has remained suppressed,” the bank said.
Since the start of the auction system, there are private sector companies and individuals who have tried to put in disruption but the RBZ said it has mended all loopholes.
“While the Bank is encouraged by the fact that some business entities have realigned their pricing models to the auction determined exchange rate, other entities are not complying and charging for goods and services at rates higher than the auction rate despite accessing foreign exchange from the auction.
“Such practice of forward pricing of the exchange rate goes against the positive outlook on the exchange rate that is showing consistent signs of convergence as evidenced by the continued narrowing of the bands between the highest and lowest foreign currency bids and the reduction in the parallel exchange rate premium to below 15 percent,” the Bank said.
Monetary authorities at the RBZ observed that in the long run, the auction system has to be sustainable in order to even out pricing of goods and services.
“Sustaining the auction system is therefore crucial in fostering price stability in the economy.
“The resultant stability and predictability in the exchange rate is envisaged to help stabilise prices of goods and services.”
Figures from the Monetary Policy Statement indicate that since its introduction on 23 June 2020, a total of US$137.4 million has been allotted against bids for US$157.8 million at the end of ninth auction on 18 August 2020. Effectively the auction system has to date served 87.1 percent of the formal foreign exchange market demand. Total foreign currency allotments have ranged between US$10.3 million and US$18.8 million per auction.