Foreign Currency Auction System bearing fruit?

The Reserve Bank of Zimbabwe (RBZ)  has made major milestones in the implementation of a monetary targeting framework that has successfully contained reserve money growth and the introduction of foreign exchange auction system that has brought stability of the exchange rate, the Monetary Policy Committee (MPC) has said.

However some have mixed feelings stating the foreign currency auction system is fixed.Nevertheless it is in the same light that no economy in the world can be rigged like elections and results on the ground speak for themselves more.

On the developments on the exchange rates that are being used in the economy, the formal market including the auction system Is trading as much as US$6 billion, leaving less than 10 percent to be traded on the parallel market.It is only greediness for market participants to use rates determined by a small section of the market.Apart from what has traded on the foreign currency auction system, banks have also been trading foreign currency for their customers and getting higher margins but mostly within the RBZ stipulation

The new members of the MPC revealed this in the resolutions of their inaugural meeting held in Harare. The members deliberated on recent economic and financial developments and their implications on monetary policy.

The new committee members were appointed by Finance and Economic Development Minister Professor Mthuli Ncube in February and the five are:  Albert Makochekanwa, Persistence Elison Gwanyanya, Daniel Makina, Charity Jinya and Mathilda Dzumbunu.

“These policies have anchored inflation expectations, contributing to ongoing reduction in (annual) inflation, which has declined from 837,5 percent in July 2020 to 240 percent in March 2021. Similarly, monthly inflation fell from a peak of 35,53 percent in July 2020 to 2,26 percent in March 2021,” reads the statement by the committee’s chairperson and RBZ Governor Dr John Mangudya.

The MPC affirmed its commitment to the implementation of sound monetary policies in order to sustain the current disinflation trajectory and ensuring a conducive macroeconomic environment for investment and growth.

The MPC made some resolutions to buttress measures announced in the February 2021 Monetary Policy Statement and to sustain the current macroeconomic stability.

The resolutions include (1) maintaining the current conservative monetary targeting framework, anchored on 22,5 percent reserve money quarterly targets; (2), keeping the bank policy rate and the Medium-term Bank Accommodation (MBA) Facility rate at 40 percent and 30 percent, respectively; (3), increasing the amount of the MBA facility by an additional $2,5 billion to cater for the winter wheat planting programme and (4), putting a cap on the interest rate at which banks can on-lend the proceeds from the MBA facility at 10 percent above the borrowing rate to ensure recovery of the productive sectors.

The MPC also encouraged bureaux de change to support Micro, Small and Medium Size Enterprises (MSMEs) that require foreign currency for their various productive requirements at levels below the minimum qualifying threshold of the SME foreign exchange auction system.Issuance of Treasury Bills has seen Government come to the market wanting to raise close to $1 billion as of today, to the general public may be a sign of national coffers running dry, yet it is instead part of initiatives announced in the 2021 National Budget Statement.