The Reserve Bank of Zimbabwe (RBZ) has released $100 million to clear the backlog of foreign exchange allocations at the weekly RBZ auctions, Governor Dr John Mangudya has said.
The central bank introduced weekly foreign exchange auctions in 2020 to improve access to foreign currency by major importers, but some of the winning bids could not be funded due to the shortage of foreign exchange.
Market shortages have seen a number of businesses, including major supermarket chains, fix prices using black market exchange rates to induce customers to use hard currency for payments.
In an interview with The Herald Finance and Business, Dr Mangudya said the central was working “hard” to clear the backlog to ensure stability in the foreign exchange market.
The RBZ said earlier that the backlog had reached $179 million before the bank closed outstanding allocations in September last year.
Earlier this year, Dr Mangudya said the apex bank had made progress in clearing outstanding amounts from bids approved at the auction and was now seeking to be up to date on new allocations.
“We need to bring stability to the foreign exchange market and the money we have released will significantly clear a lot of the backlog,” Dr Mangudya said, adding that the central bank would thrive to achieve currency rate convergence. official and parallel market exchanges. to build market confidence.
The Zimbabwean dollar weakened slightly against the US dollar in the latest currency auction on Tuesday.
The official exchange rate fell back to 1 USD: 138.19 USD against 134.08 USD during the previous auction. On the black market, US$1 trades between $250 and $280.
“Our main objective is stability and ensuring convergence so that we can have a single exchange rate,” Dr Mangudya said. “This will reduce exchange rate volatility.”
Many companies seeking foreign currency use black market rates to entice customers to spend foreign currency or offer huge discounts for US dollar purchases.
A mini-survey by this publication found that major supermarket chains, including OK Zimbabwe, Pick n Pay and Food World, use rates between 200 and 220.
The Retailers Association of Zimbabwe (RAZ) cited lack of access to foreign currency, delayed currency allocations to value chains and speculative tendencies among retailers as key reasons why companies were charging prices using the black market rate.
“But although there may be loopholes, we encourage businesses not to participate in the parallel market to defend the local currency and promote its use and circulation,” RAZ Chairman Mr. Denford Mutashu said in an interview. .
He said that while clearing the backlog was essential, there was a need to create other means of supplying foreign currency to reduce traffic to the auction market, he said.
The foreign exchange auction system, now in its second year, continues to play a vital role in bringing transparency, inclusiveness and stability in foreign exchange trading to the economy. As of December 31, 2021, the central bank has carried out 77 main auctions and 71 SME auctions since its creation on June 23, 2020.
In 2021, $1.97 billion has been allocated, which represents 97% of the total bids submitted for auction.
This amount represents about 30% of total foreign payments processed by banks in 2021, according to the Reserve Bank.
The share of SME awards auctioned of total awards increased from 8% in Q1 2021 to 19% in Q4 2021.
There has been a marked increase in the number of participants in the auction system, with applicants rising from around 500 at the start of 2021 to a peak of just over 2,000 at the end of the year.
The auction system has provided essential liquidity to the main productive sectors of the economy, leading to better capacity utilization and significant import substitution.
Most of the auction allocations went to imports of raw materials, machinery and equipment as well as other consumables for industry, the central bank said.