THE Reserve Bank of Zimbabwe (RBZ) has released US$100 million to clear the backlog of foreign currency allocations at the RBZ’s weekly auctions, Governor Dr John Mangudya said.
The central bank introduced weekly foreign currency auctions in 2020 to enhance foreign currency access by key importers, but some of the successful bids could not be funded due to shortage of forex.
Shortages in the market has seen a number of businesses, including leading supermarket chains pegging prices using black market exchange rates to entice customers to use hard currency for payments.
In an interview with The Herald Finance and Business, Dr Mangudya said the central was working “flat out” to expunge the backlog to achieve stability in the forex exchange market.
The RBZ indicated earlier that the backlog had reached US$179 million before the bank ring-fenced the outstanding allocations in September last year.
Earlier this year, Dr Mangudya said the apex bank had made progress towards clearing the outstanding amounts of bids approved at the auction and was now seeking to be current on fresh allotments.
“We need to bring stability in the exchange market and the money we have released will substantially expunge a big chunk of the backlog,” said Dr Mangudya, adding that the central bank would thrive to achieve the convergence of the official and parallel market exchange rates to boost market confidence.
The Zimbabwean dollar weakened slightly against the US dollar on the last foreign currency auction on Tuesday.
The official exchange rate retreated to US$1: $138,19 from $134,08 in the previous auction. On the black market, US$1 is trading at between $250 and $280.
“Our major thrust is on stability and to ensure there is convergence so that we can have a single exchange rate,” said Dr Mangudya. “This will dampen exchange rate volatility.”
Many businesses seeking foreign currency are either using black market rates to entice customers to spend forex or offer huge discounts for US dollar purchases.
A mini survey by this publication revealed that leading supermarket chains including OK Zimbabwe, Pick n Pay and Food World are using rates ranging between 200 and 220.
The Retailers Association of Zimbabwe (RAZ) cited lack of access to foreign currency, delayed forex allocations to the value chains and speculative tendencies among retailers as major reasons why businesses were charging prices using black market rates.
“But while there might be some gaps, we encourage businesses not to participate on the parallel market to defend local currency and promote its usage and circulation,” Mr Denford Mutashu, the president of RAZ said in an interview.
He said while clearance of the backlog was critical, there was a need to create other ways of sourcing foreign currency to reduce traffic to the auction market, he said.
The foreign exchange auction system, which is now in its second year, continues to play a critical role in bringing transparency, inclusivity and stability in the trading of foreign currency in the economy. As at December 31, 2021, the central bank conducted 77 main and 71 SMEs auctions from its inception on June 23, 2020.
In 2021, US$1,97 billion was allotted, representing 97 percent of total bids submitted to the auction.
This amount represents around 30 percent of total foreign payments processed by banks in 2021, according to the Reserve Bank.
The share of allotments of the SMEs auctioned to total allotments grew from 8 percent in the first quarter of 2021 to 19 percent in the fourth quarter of 2021.
There was a marked increase in the number of participants on the auction system as applicants rose from about 500 at the beginning of 2021 to reach a peak of just over 2 000 by year-end.
The auction system has provided essential liquidity to key productive sectors of the economy, leading t0 enhanced capacity utilisation and significant import substitution.
Most of the auction allotments went towards imports of raw materials, machinery and equipment as well as other consumables for industry, the central bank said.