Dollar eases 2.6pc at auction

Source: Dollar eases 2.6pc at auction | The Herald

Dollar eases 2.6pc at auction
Dr Mangudya

Herald Reporter
The Zimbabwe dollar eased 2.6 percent in the eighth foreign currency auction held yesterday to a weighted average of $82.56:US$1, confirming the growing stability in exchange rates and resultant prices that the auction process has already brought about, and for the first time, all valid bids were allotted in full.

The 171 bidders in the main auction were allotted the full US$17.9 million they sought and the 75 valid bidders in the small-bidder SME auction received the US$789 866 they wanted.

There were 30 bidders who did not meet the conditions, 15 in each auction, but this was the smallest number of rejected bids since the system started.

Reserve Bank of Zimbabwe Governor Dr John Mangudya has now come out formally to note that the RBZ sees the auctions as the system to set the exchange rate, the process known as price discovery, but that he expects the majority of currency trading to now take place within the banking system outside the auctions using the auction rates.

He sees auction dealing with just 20 to 30 percent of trading, but setting the prices.

He also sees that the RBZ can continue to supply the currency needed for the auctions, from its share of export earnings, with the fact that yesterday’s valid bids were all allocated in full being a sign that this was possible.

Dr Mangudya said he was pleased with the price stability that has since established in the economy, where goods that were being priced using an implied rate of 120 before the auction system was introduced, are now being priced at rates below 100.

Dr Mangudya allayed fears that exporters are not participating by reiterating that the auction system is for price discovery and is not expected to conduct all foreign currency trades.

Trading is allowed to take place in between auctions and a level of 20 percent on the auction system is acceptable.

He said the central bank was getting sufficient foreign currency from surrender requirements from exporters to feed the auction system.

Of the approximate US$300 million foreign currency inflows each month, an average 30 percent is surrendered to the central bank, and that is what is being used to feed the market.

With the exception of fuel imports, the economy requires approximately US$80 million a month, according to Dr Mangudya.

“Normally, the auction is expected to meet 20 to 30 percent of the requirements, and this is what is happening.”

“We are pleased by the performance of the auction. We are pleased by the level of amounts allotted by the auction and also we are pleased by the retentions and also the tobacco proceeds that have been used to sustain the auction this far

The growing confidence on the auction system as seen by the near stabilisation of rates will see complete exchange rate converging in the next three or four auctions, according to Dr Mangudya.