The ruling exchange rate for the US dollar eased upwards just over 10 percent to Z$63,7442:US$1 in the second weekly auction yesterday, promising growing stability in foreign currency markets as the new system becomes entrenched.
Yesterday’s auction saw US$16.3 million in allotted applications being funded from total submitted bids of US$18.9 million, as more in the private sector entered the official market.
This week saw 316 bidders, more than three times as many who took part in the first auction.
The gap between the highest and lowest bids was still wide, but far less than the range since last week in the first auction. The top bidder put up Z$92 for a US dollar while the lowest bidder offered Z$37.82, a gap of Z$54.18, compared to the gap of Z$74,50 last week between a high of Z$100 and a low of Z$25.50.
The gap between highest and lowest bids is expected to continuously narrow as bidders learn from experience and learn to read the market trends better. But some people were still spending a lot more for their foreign currency than other successful bidders.
The Reserve Bank of Zimbabwe also granted requests for observers to see that in fact the auction is open and transparent without manipulation.
Economist and member of the Reserve Bank monetary policy committee Mr Eddie Cross, who attended the auction said after a week of market-based exchange rate determination, which ensures predictability and formal access to forex, prices should start to fall gradually.
“We had 316 applications and the total sum allocated was US$16.3 million from bids of US$18.9 million. The weighted average bid rate was $63.70 and quite a large group of people observed the operation, including representatives from Confederation of Zimbabwe Industries and the Bankers Association of Zimbabwe.
“I think it was same as last week; very open and transparent and I think we are seeing an increasing appetite by the private sector to use formal means of securing foreign currency. If it continues like this I think we will see gradual reduction of the open market rates,” Mr Cross noted in an interview.
A top businessman who declined to be named said he was now convinced the auction system was proving to be a success and would bring the economy back to stability.
“The auction system brings in a level of transparency that has not been seen historically,’’ he said.
Once again raw materials and consumables, things like spare parts, dominated the bids.
The allocations by sector were, in US dollar terms:
Raw materials 7 203 581,85
Consumables 2 577 201,05
Food and Beverages 1 725 377,29
Agriculture 1 050 389,77
Chemicals 1 006 115,27
Medicals 766 627,00
Machinery and equipment 641 312,79
Services 559 000,00
LPG gas 416 623,59
Other 375 000,00
Total 16 321 028,61
The auction system, which started last week, replaced the interbank market introduced in February last year and the fixed exchange rate adopted in March this year for certainty of pricing after the outbreak of Covid-19.
The auctions are designed to match export earnings with import requirements, something possible since Zimbabwe started recording currency account surpluses at the end of last year.
The RBZ said last week that banks had nearly a billion dollars-worth of forex in foreign currency accounts and healthy inflows to sustain the newly introduced forex auction system.
RBZ Governor Dr John Mangudya has continuously stressed that exports are adequate to fund imports, and what was needed was an efficient system that allowed importers to access the export earnings.
Concurring that the interbank market had not been as efficient as expected, he said the auction system being more open and totally transparent would do this.