Forex auction rate eases to $76.76

Source: Forex auction rate eases to $76.76 | The Herald

Forex auction rate eases to $76.76

Herald Reporter
The exchange rate between the Zimbabwe dollar and US dollar eased to $76.7596 following yesterday’s auction which saw US$14.3 million allotted with almost all successful bids in the very narrow range of $75 to $80, the top bidder offering $82.

Yesterday’s auction, which is the sixth since inception of the foreign currency auction system saw the local dollar easing by 6,4 percent from last week’s exchange rate of $72.14, but the exceptionally narrow range of bidding is seen as a strong sign that the market-led process of “price discovery” is now working properly, with general agreement on the true value of the Zimbabwe dollar with only $7 difference between the lowest successful bid of $75 and the top bid, the lowest so far in the auctions, of $82.

It is now emerging that some exporters and other holders of foreign currency are selling forex to banks at around the auction rate and importers are buying at this rate, with just the small banking margins being charged.

This would imply that the auction is seen as a legitimate and accurate measure of value and general acceptance that the rate generated is the correct one.

Smaller importers and exporters in any case have to use the banking system, but are now mirroring the auction rate.

Yesterday’s highest bid of $82 was the lowest since the auction began, and an 18 percent decline from the highest bid rate of $100 on the first day of auctions on June 23, while the lowest accepted bid rate was $75 up from $70 at last week’s auction.

Reserve Bank of Zimbabwe (RBZ) Governor Dr John Mangudya is on record saying narrowing of the spread and the bid band is an indication that the rate is moving towards stability, with the RBZ focus being to achieve price stability, which leads to low inflation as well as exchange rate stability.

“So with the spread narrowing, we are very pleased with that,” said Dr Mangudya last week.

Demand for foreign currency at US$19.3 million was slightly lower than last week’s US$20.3 million.

With 74.3 percent of bids accepted, yesterday’s amount allotted was an improvement from 73.1 percent the previous week.

There is, however, a potential information gap in the market as some importers are accessing foreign currency outside the auction trading system, but through banks at the prevailing exchange rate, effectively buying from exporters willing to sell at that  rate.

Smaller importers need to do this in any case, as the smallest sum that can be bid for is US$50 000, but the total amount being traded through banks is now needed so that the full picture of trade can be seen.

A senior Government official who attends the auction meetings said banks will in the near future be asked to disclose information on foreign currency transactions that are taking place in between auctions as a way of closing the information gap.

“Eventually we should get to a situation where foreign currency can be traded through banks and bureaux de change using the auction determined rates plus the allowed margins,” said the source.

According to exchange control directives, banks and bureaux de change are allowed to buy and sell foreign currency in between auctions at limited margins.

This means they buy at a slightly lower rate than the auction rate and sell at a slightly higher rate, using the difference as their fee for the service.

This, in a stable environment, is how most trading is done around the world and might become ever more common in Zimbabwe as rates stabilise and bid bands continue to narrow.

The bulk of yesterday’s foreign currency resources were allotted to raw materials, with US$7,7 million, and machinery and equipment on US$3 million, a market response to the Government’s objective of increasing production in the economy.

Another positive development is that firms that wish to service their loans, repatriate dividends and as well as disinvestments are being allotted funds. At least US$760,482 went towards such investors.

At least 55 bids were rejected amid concern that some players are still ignoring clear auction rules by submitting bids that do not qualify.

COMMENTS

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  • comment-avatar
    Dr Ace Mukadota PhD 5 days ago

    ZW dollar loses 98.69 per cent since mid February 2019 when one ZW dollar equaled one US dollar comrades.
    Professor Steve Hanke of Johns Hopkins University said yesterday about Zimbabwe :- “In a futile attempt to stop inflation, Zimbabwe’s govt has announced rules to force businesses to resort to a single exchange rate. Inflation, by my measure, is at a stunning 778.4%/yr.
    = incompetence at its finest.