Senior Business Reporter
THE Monetary Policy Committee (MPC) has recommended that the Reserve Bank of Zimbabwe (RBZ) should clear the US$175 million outstanding bids at the foreign exchange auction within a month in line with the set rules of funding allotments within two weeks.
Meeting the set rules could become easier going forward after the MPC noted the impressive performance of foreign currency receipts, which increased by 32 percent to US$5,09 billion for the eight months to August 27, 2021 from US$3,85 billion in the same period last year.
RBZ Governor Dr John Mangudya said in a statement yesterday, after the MPC’s meeting on August 27, 2021, that the recommendation was in line with measures pronounced in the mid-term monetary policy earlier this month.
Earlier reports indicated the backlog at the auction, which has disbursed US$1,7 billion since inception, was reaching US$200 million, with outstanding but approved bids taking as long as two months due to logistical issues.
Ordinarily, the auction system is designed to operate on a T+3 cycle, meaning all bids must be settled starting from the third day after approval is granted during the weekly auction while they must be funded within a fortnight.
Smooth functioning of the auction system, introduced in June last year, will be critical in sustaining the prevailing macro-economic stability, anchored by exchange rate stability and exponential decline in the annual rate of inflation.
“The MPC urged the Bank to clear the backlog in a month’s time to enable the Bank to operate the auction system within the set rules of funding auction allotments within two weeks from the date of auction,” Dr Mangudya said.
The MPC also emphasised the need for banks to avoid the use of overdrafts to fund auction allotments except in exceptional circumstances in support of productive sector activities.
The committee further agreed to refine the auction system to enhance its purpose as a dependable and efficient mechanism of availing forex to the economy by aligning the bidding process to the ultimate beneficial ownership.
Measures will include maintaining the US$500 000 and US$20 000 maximum bid limits for primary producers under the main auction and SMEs auction, respectively as well as capping bid limits for secondary users, consumables and services at US$100 000 under the main auction.
The MPC also called for encouragement of the business community and banks to ensure that they exercise customer due diligence on all foreign exchange transactions in compliance with international best practices.
It said Bureaux de change should be liberalised further to promote financial inclusion by allowing them to process small value foreign currency transactions of up to US$50 per person per week on the basis of individual identities.
The committee also wants banks to encourage their clients to invest in interest bearing and value preserving financial instruments available at the Bank, including time deposits and exchange rate indexed bonds.
Dr Mangudya said the MPC emphasised the need for staying the course of the current monetary policy stance which has proven to be effective in combating inflation and fostering monetary stability in the economy.
“Commendably, the prudent monetary policy stance has seen year-on-year inflation dropping from 837,5 percent in July 2020 to 50,2 percent in August 2021,” Dr Mangudya.
In Terms of other key resolutions, the MPC agreed to maintain the bank policy rate at 40 per annum per annum and the interest rate on the medium term bank accommodation facility at 30 percent per annum.
Additionally, it endorsed the RBZ’s decision to keep the quarterly reserve money target at 20 percent, with the view to achieving a lower level of monetary expansion by year end, particularly if inflation and other macroeconomic developments make it necessary.