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Herald Reporter

The auction rate slid gently to $112,8228 against the US dollar on Tuesday at the first auction of this year.

It fell from $108,6660 at the last auction of last year on December 14, with market sentiment driving the change.

The 3,8 percent down drift in just over a month was roughly in line with what was being seen since early October when the Reserve Bank signalled through the minimum auction bid it found acceptable that the exchange rate should now track a bit more closely the weekly and monthly difference in Zimbabwean and US inflation rates.

Although inflation is rising in the United States as a result of the Covid-19 relief measures it is still well below the Zimbabwean rate, so there will be sliding in the exchange rate.

The Tuesday slide was largely driven by the minimum bids put in by the larger bidders. All valid bids were accepted by the Reserve Bank, although more than 28 percent of the main auction bids were rejected for not meeting the conditions, but only 22 percent of the bids in the SME auction getting the chop.

The Reserve Bank became tougher towards the end of last year, and besides the standard conditions that a bidder must have cleared previous imports and exports and must submit accurate invoices to back a bid, is now insisting that the bidder has the Zimbabwean dollars in their bank account before bidding and has spent what they bought last time. The measures are to stop speculation and creation of money supply.

But the top bid on the main auction moved marginally from $125 to $126, and on the SME auction it actually dropped, from $126 to $125. As successful bidders pay what they bid there is obviously pressure to keep the bid as close as possible to the average.

The main change was seen in the lowest bid. On the main auction this rose from $102 to $105, so there was still some bargain hunting, but on the SME auction it stayed put at $100, and the Reserve Bank was prepared to accept that so some SME bidder got a really good bargain.

The main reason for the movement in the average must therefore have been more bidders in the middle moving their bids up a bit, suggesting market sentiment is the main reason for the movement.

Tuesday’s auction saw a total of US$30 866 275,90 allotted, with US$25 679 781,10 going to the 320 successful bidders on the main auction and the balance of just over US$5 million going to the 492 successful bidders on the SME auction.

The amount allotted was less than on many recent auctions. Part of this is explained by the better harvests last year. Cooking oil companies have been, in total, the biggest bidders on the auctions. But last season more oil seed was grown in Zimbabwe both soya bean and sunflower, the direct seed crops, and with a larger cotton harvest. Cotton seed oil traditionally has been a major component of Zimbabwean cooking oil blends and the resurrection of this crop will help reduce imports.

Cotton seed oil is what is known as a non-drying oil, meaning it does not oxidise in use, which is unusual in vegetable oils, so it tends to last longer. Those manufacturers using it in some of their blends have been careful to make that a selling point.

At the same time Zimbabwean farmers covered the maize requirements and almost covered the wheat requirements, so food imports are a lot lower. That, along with a better tobacco harvest and better gold deliveries, should see lower demand for auction funds and more foreign currency available. The combination should help avoid the delays seen last year between allotment of bids and payment of the funds.

The tendency of the auction rate these days to follow partly the inflation rate, the slips being slightly below monthly inflation, means that the exchange rate will be largely neutral in the inflation we see.

The alignment prevents stresses in economic fundamentals in trying to preserve an artificial rate, but does not make inflation worse. This will mean inflationary trends come from other sources that the authorities can address.