Currency market rates responded to the shock withdrawal of the multicurrency era and the renaming of the RTGS dollar to the Zimbabwean dollar in somewhat mixed fashion as for the first time since inception the interbank and parallel market rates in moved in different directions.
For quite sometime now pricing had become commonly denominated in US dollars and also in RTGS dollars using the indicative rate. The indicative rate being the parallel market rate as it offered accommodation to formal and informal traders alike. The interbank rate while considerably lower was ineffective as the market failed to provide the needs of the few formal businesses who had access to it.
The rate picture as of yesterday was a bit of a muddled picture. Banks posted buy rates as high as 8.6 for the US dollar and unconfirmed reports of Bureau de changes paying as much as 12.5. It is a market after all and participants are supposedly free to offer rates they deem competitive. One key caveat was that these rates were being offered to existing bank customers. So not for everyone and only buy rates.
On the other side of town, rates had dropped as low as 9.5 with the market also seeming to be low on trades. While it is extremely difficult to determine the overall activity in the foreign currency market it would seem that the position in the parallel market is also prejudiced towards buying foreign currency.
For informal traders and those who do not have access to the interbank market, the current rate decline represents a discount in the price they pay for US dollars and analysts seem to lean towards it being a great time to buy. The pricing we have seen after the statement is a sign that businesses do not currently have confidence in the decline being a long term development.
The removal of all other currencies as legal tender also puts a bit of strain on the currency currently in circulation. The limited supply of bond notes, $600-$800 million according to Reserve Bank Governor John Mangudya, means that the demand for physical cash notes for transacting has placed downward pressure on the exchange rate. While we like to behave as otherwise, Zimbabwe is a cash-based economy that has been forced to turn to electronic options. The RBZ has promised to print around $400 million worth of bond notes to alleviate the situation.
Prices, however, have gone the other way and this may be the leading indicator that shows that many believe the current rate drop is temporary. The major issue is around access to these cheaper US dollar rates and that remains to be seen going forward. If the interbank market opens up we can expect a long term smoothing on rates and their rate of increase.
A few months back RBZ Governor John Mangudya said the parallel and interbank markets would converge by July. The information available to us at the time had us all doubting Mangudya’s assertion but if the current status quo is to hold history will recall the man as being right. Of course, the right governor had more information than any of us did.