According to a report by Bloomberg, the Reserve Bank Governor Dr John Mangudya reiterated his belief that the Interbank market rate for the RTGS dollar versus the US dollar will converge with the parallel market rate. He spoke on the 7th of May to business leaders in Harare. This despite the rate for the rates currently standing at 3.29 on the interbank market and 4.80 -5.00 on the parallel market. Mangudya seems to be set on starting his second term as RBZ Governor the way he conducted his first term.
Mangudyas statement, however, lacks evidence on the ground or otherwise to back it up. The graph below shows clearly that there is a huge spread between the two market rates. The difference is currently 1.71. In fact, that spread between the two rates has grown from March 2019 levels of around 1.2. Business leaders and participants have also spoken about the inability of the interbank market to provide for the forex needs of industry. Companies like Olivine and Turnall have complained of lack of foreign currency in the system while Simbisa brands have managed to meet their foreign currency needs through US dollar pricing.
Mangudya reiterated that the reserve bank was not in control of the interbank market and the rate was being set by the market. It’s a little hard to believe that the bank that controls all banks does not have any influence in the market that is controlled by banks.
Why there is a difference
When the interbank market was launched there was optimism about the availability of foreign currency and the convergence of rates. The first move that showed this was unlikely came in the rules for the interbank market which we discussed at the time. A market that was created to freely buy but not freely sell was bound to be inefficient. This on top of the use it or lose it rule and the foreign currency surrender rules already in place for exporters meant the supply side (willing seller) of the interbank market was being artificially created. The second move that led to the difference was when the banks decided to set an opening rate of 2.5, coming in at a rate that was at the time offering 1.5 less than the parallel market would never attract any money.
In spite of assurances by Mthuli Ncube that RTGS dollar would strengthen against the US dollar because the money supply growth has been constrained the RTGS dollar has widely depreciated. Mangudya to his credit conceded early on that the RTGS dollar would depreciate in the market. At the onset, Mangudya had said he expected the rate for the US dollar to be between 3 and 4 (leading many to believe it would be 3.5) which was realistic given the parallel market was trading at 4. For a time, the parallel market did in fact ease to 3.5 as the interbank market opened but those days are long gone as the rate marches on.
The reserve bank Governor expects the two rates to converge by July. Mangudya also stated that they were making progress towards appointing a Monetary Policy Committee, the absence of which might explain the policy we received in February.