According to the Reserve Bank of Zimbabwe in its mid-term Monetary Policy Statement, activity on the interbank foreign exchange market has increased since its introduction in February 2019. The central bank said foreign currency reforms, which started with the separation of accounts in October 2018 and the introduction of the local currency in June 2019, have now been fully achieved.
“The introduction of the Zimbabwean dollar together with the fine tuning of the interbank market resulted in increased foreign currency trading in the formal system and narrowing of the premiums between interbank market and parallel market foreign currency rates,” reads the apex bank’s statement.
The interbank exchange rate stood at ZWL$15,59/US$ as of yesterday, compared to ZWL$2,50/US$ when it was floated on February 22.
The accompanying graphs (above and below) show movements in the interbank exchange rate since the introduction of the interbank market in February 2019.
In his 2020 pre-budget strategy paper Finance and Economic Development Minister Mthuli Ncube said Government will work on stabilising the macro-fiscal environment to pave way for initiating the outstanding steps in completing the mono-currency (use of the local dollar for all local transactions) reforms.
Minister Ncube suggests that a stable macro-fiscal environment will help resolve the prevailing cash shortages and also boost confidence in the local currency.
Consequently, the RBZ will continue implementing a tight monetary policy regime that anchors inflation expectations and stabilises the exchange rate.
Reserve money growth will therefore be maintained at a target of 10 percent per annum.
Other currency stabilisation measures include supporting the interbank market through initiatives such as the USD denominated savings bonds currently at 7,5 percent interest rate. This will also involve curbing speculative borrowing through appropriate interest rates adjustments.
Measures will also include regulating unethical practices on the Stock Exchanges and Bureau de Changes (eg placed a vesting period of 90 days for dually listed shares) as well as strengthening the recently established Reserve Bank Monetary Policy Committee and new RBZ Board.
Minister Ncube has since appointed a nine-member monetary policy committee (MPC) of the Reserve Bank of Zimbabwe (RBZ), which is chaired by central bank governor Dr John Mangudya. The MPC’s functions entail determining the monetary policy of Zimbabwe but its immediate task entails stabilising the local currency exchange rate, which has been on a free fall since being floated in February this year.
Meanwhile the central bank says swift foreign currency payments decreased by 5 percent to US$0,69 billion for the quarter ending June 2019, from US$0,72 billion in the quarter ending March 2019.
“During the same period, SWIFT foreign currency receipts decreased by 6 percent to US$0,69 billion from US$0,74 billion, in the previous quarter.
Net foreign currency inflows amounted to US$9,55 million in the quarter ending June 2019, from a net inflow of US$22,42 million recorded in the first quarter of 2019.