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Business Reporter

THE Reserve Bank of Zimbabwe (RBZ) has injected US$64 million into the foreign exchange market to meet the growing demand for hard currency and ensure that all bona-fide foreign currency applications are honoured.

In a statement yesterday, RBZ Governor Dr John Mushayavanhu said the central bank had observed a recent increase in demand for foreign currency, which has temporarily strained the foreign exchange market.

This surge was despite the injection of US$50 million in July to address the increase in foreign currency requests.

To address supply-demand imbalances last month and this month, the Reserve Bank first injected US$24 million into the interbank foreign exchange market during the first two weeks of this month and then another US$40 million this week in response to the ongoing demand for foreign currency.

This resulted in a cumulative foreign currency injection totalling US$64 million for this month alone.

“The Reserve Bank’s intervention is consistent with its policy stance of ensuring that all bona-fide foreign currency applications are honoured and with its role as a participant in the foreign exchange market,” said Dr Mushayavanhu.

“The Reserve Bank is, therefore, pleased to advise that it will continue to ensure that there is seamless settlement of foreign payments in the interbank foreign exchange market.”

The bank uses half of export surrender receipts to keep the foreign exchange market liquid.

Dr Mushayavanhu said foreign currency receipts during the first eight months of this year increased by 13,4 percent, compared to the same period last year.

The growth would support timely foreign payments from importers’ foreign currency accounts and the Reserve Bank’s weekly foreign currency injections from export surrender receipts.

Furthermore, the increase in foreign currency receipts would continue to bolster economic activity.

Dr Mushayavanhu said the injection of US$64 million would help absorb excess ZiG liquidity in the market and further strengthen the stability of the ZiG.

“Against this background, the Reserve Bank calls upon economic agents to comply with the stipulated foreign exchange framework in the pricing of goods and services,” said Dr Mushayavanhu.

“The Reserve Bank will continue to entrench the stability of the ZiG and ensure the smooth settlement of foreign exchange transactions through the interbank foreign exchange                                                                             market.”

Zimbabwe’s foreign exchange market is based on the willing-buyer willing-seller system, introduced by the Reserve Bank in April along with a new reserves-backed currency, the ZiG, as a replacement for the previous foreign currency auction system and Zimbabwe dollar.

The willing-buyer willing-seller system seeks to create a market-driven exchange rate by enabling buyers and sellers to negotiate directly for foreign currency.

Despite claims from businesses that they are not receiving enough foreign currency on the interbank market, authorities have dismissed these assertions, saying there is enough liquidity to meet legitimate foreign currency needs.

The authorities also suggest that some companies may be seeking foreign currency to build up inventory as a means of what they might see as value preservation.

In addition, they argue that certain businesses, despite generating foreign currency through their sales, are reluctant to use these funds for imports and prefer to rely heavily on the interbank market.

Since the introduction of the ZiG and the establishment of the interbank foreign exchange market in April, the exchange rate has remained relatively stable, averaging around 13,6 ZiG to US$1.

The RBZ said about US$190 million had been traded on the interbank market between April and August 3.