The interbank rate for the US dollar versus the RTGS dollar saw a jump from 3.48 to 4.55 in a single day. This coming hot on the heels of the Saturday announcement that the government had sought US$500 million to stabilise the interbank market price. The Reserve Bank of Zimbabwe finally removed the 1:1 exchange rate that fuel importers were still getting for the US dollar versus the RTGS dollar, stating that fuel companies would now have to buy their own foreign currency on the interbank market. A welcome move from an academic standpoint as the government had been effectively subsidizing fuel price.
Fuel companies moved swiftly to hike prices with transport operators the following suit. The full effects of the hike on prices are yet to be felt as the pass on effect will take some time and we are likely to see more increases in other sectors.
The reserve bank of Zimbabwe moves towards liberating the interbank market lead to a surge in trades, US$5 million was recorded to trade yesterday. This is in a market that has traded only US$80 million in just under 3 months. Confederation of Zimbabwe industries president Sifelani Jabangwe places the needs of industry at US$300 million per month. The jump in the rate is believed to represent a move towards a liberal market.
On the other side of the street, the parallel market rate reacted too. The rate which had started to back down from record highs of 7.1 last week to around 5.6 on Tuesday was quoted at around 6.6 on Wednesday meaning its upward trajectory continues. Critical here is the difference between the two rates which now stands at a whopping difference of 2.05. In the early days of the interbank market, this differential settled to around 1.2 and held there for some time.
In my analysis on why the interbank market wasn’t working, I leaned into the inability of the market to attract sellers of foreign currency, among other reasons of course. While the interbank market was able to attract $102 million in the course of the 3 months one would quickly surmise that these amounts likely came from the forced surrender requirements and the use it or lose it Policy. Currently offering ZWL$2.05 less per US dollar than the parallel market no willing seller would choose the interbank market; in theory of course.
The US$500 million that was availed to the Reserve Bank of Zimbabwe by unnamed international banks is also believed to be behind the improved trade but clearly has missed the mark on holding down the exchange rate. The wisdom of borrowing to fund the market is questionable at best. These sentiments were shared by the Ministry of Finance Permanent Secretary George Guvamatanga when speaking on ZBC TV. Guvamatanga notes that there is US$800 million sitting in (post-October 2018) Nostro Accounts and regular export proceeds coming into the country, currently US$700 million. Based on this there is enough foreign currency available to meet industry needs but people were not letting go of it for what he bizarrely called unknown reasons.
We have a way to go to see how the liberation of the market if indeed it is, will affect the exchange rates and commodity’s prices going forward. Reserve Bank Governor John Mangudya stated his expectation for the parallel and interbank market rates to converge by June or July. Our analysis found the opposite to be occurring and the gap just gets wider.