The Reserve bank of Zimbabwe’s foreign currency auction system has produced another negligible movement to further the talk of the Zimbabwean dollar finally achieving stability. In the seventeenth iteration of the auction along with the eleventh for the SME auction, the result was a rate of 81.3458 Zimbabwean dollars for 1 US dollar. This marks a few important milestones including the 10th consecutive week the rate has sat in the 80s, the 6th consecutive week of appreciation of the Zimbabwean dollar and the 9th consecutive week all eligible bids have been satisfied. On the backdrop of this last week’s Monetary Policy Committee meeting produced a statement to the effect that the rules in place would remain as they are.
This week’s auction-rate marks a minor 0.012% appreciation of the Zimbabwean dollar that Zimbabweans will take after what have been a nightmarish 2 years of foreign exchange rate movement. From the beginning, we stated that the deficit is an important number to watch. We have not seen a deficit in weeks and the currency supplied is steadily increasing. In auction 17 just over US$22 million was supplied to bidders. This puts us closer to the historical estimate of the nation requiring around US$30 million per week in foreign currency. There’s a reasonable gap between those two figures but it makes sense given that a lot of participants are still excluded from the foreign currency market.
But is it real?
There will continue to be questions as to whether this stability in the auction rate is real or not. An honest would be there is no way to know from the outside. Credit to the RBZ for the information they have shared there is a lot more information needed to assert as to whether the rate is true or not. The stability we are experiencing on the other hand is easier to verify. The parallel market has been stable, albeit under duress, for a while longer than the auction. The stability does not just come as a result of administrative issues such as the clampdown on mobile money and other transfer methods but also from real-world fundamentals such as the reduction in money supply growth. So it is real. Whether or not it will last simply depends on how long those fundamentals can be held in place.
Monetary Policy Committee Statement
The Monetary Policy Committee, which I suppose is to thank for this stability we are experiencing published a statement on its deliberations last week and came out with only 3 pronouncements. We are used to seeing statements that range anywhere between 8 and 25 new measures so 3 is a shocker. What’s more two of these, the maintaining of lending rates and maintaining of mobile money limits are no changes so that means only one new measure. Things have certainly changed at number 80 Samora Machel Avenue. The new measure is an additional ZWL$2.5 billion medium-term lending facility to support the productive sectors of the economy. Well, I suppose “if it’s not broken don’t fix it” applies here.