Zimbabwe’s greatest soap opera has heated up over the last few weeks. The soap opera that is the Zimbabwean dollar got its latest instalment with the release of another statement, this time from the Monetary Policy Committee. This was followed swiftly by the first wholesale auction, which massively devalued the Zimbabwean dollar.
Just as the economy was digesting a double dose of measures put forward by the Ministry of Finance in May, we received an early June update from the Monetary Policy Committee which sought to add to the existing measures. In case you are wondering and for some reason don’t know the measures were ineffective and the Zimbabwean dollar continued its free fall on both parallel and official markets.
Monetary Policy Committee Statement Highlights
Let’s briefly look at the statement’s highlights and what they mean for the Zimbabwean dollar and, more importantly, Zimbabwean citizens.
Supply side
90-day liquidation requirement “falls away” for wholesale auction
What’s an RBZ Statement without some vague language? The RBZ Statement said that foreign currency will now be sold wholesale to banks, who can retail to customers. As a result, the 90-day liquidation requirement will fall away. The 90-day liquidation requirement is a rule that allows exports 90 days before they must change their remaining foreign currency balances into Zimbabwean dollars. So does this mean liquidation will be immediate, or are we doing away with the liquidation? A follow-up exchange control circular indicates that 25% surrender shall be conducted through banks as normal. Perhaps. The statement also used the term “market-determined rate”, but we have seen that mean anything but in the past.
Interbank limit up to 500k from 100k
Interbank transactions received a 5-fold limit increase. Presumably to accommodate the larger business that is expected to be done through the interbank market. This will now be treated as a retail channel.
One auction
This is one long overdue move. Since the SME auction’s inception, we lamented the separation of the two. This especially made no sense as we believed the auction rate was a weighted average of both the SME and the main auction bids. I guess it’s never too late to do the right thing.
Trading margins to be aligned with international “best practices”
In case one vague statement wasn’t enough, we got a second. In this case, trading margins are the additional percentages retailers can slap on top of foreign exchange rates. So the Willing Buyer Willing Seller (Shop) rate allowed a 10% margin to retailers. 10% is a fairly high margin by any measure. What international best practices means has been left to interpretation. We shall see soon enough.
Demand side
Bank policy and accommodation rates up
Once again, the RBZ resorted to tinkering with the bank policy rate. This time with a minor increase to 150% from 140%. This tool has repeatedly proved ineffective, but the RBZ have little in their arsenal to address the real issues. The bank accommodation rate also increased marginally from 70% to 75%. Ultimately the goal is to slow down the flow of money and make borrowing for speculative purposes expensive.
Statutory reserve requirements up
The Apex bank sought to die down more money by increasing statutory reserve requirements. This is the percentage of depositors’ money that must be kept within the bank and cannot be lent. For demand deposits, the percentage is up to 15% from 10%. It has not changed for time or term deposits.
The RBZ insists on using blunt tools and has little appetite to deal with the core issue identified by the Ministry of Finance; money supply growth. In addition to all the measures, the statement spoke about gold coin and digital gold coin sales.
To date, the Bank has sold to the market ZW$31.8 billion and ZW$35.2 billion worth of gold coins and gold-backed digital tokens, respectively.
Interesting numbers if you consider the former has been on sale for close to a year while the latter is just one month in. A sign of the monetary times, perhaps.
Wholesale auction
The first Wholesale auction happened on Wednesday, the 7th of June, and the results were interesting. Where the previous day’s auction valued the US dollar at 3673.7718 Zimbabwean dollars, the wholesale auction valued one US dollar at 4868.5152 Zimbabwean dollars. That’s saying a lot. According to reports, the parallel market worked with around 5500 Zimbabwean dollars for a single US dollar. Is the RBZ truly committed to market-determined rates? While this looks like a step towards it we have not forgotten how similar moves in the past didn’t work out either.
Foreign Exchange Auction Results – 6 June 2023 pic.twitter.com/fCZnnzaSwO
— Reserve Bank of Zimbabwe (@ReserveBankZIM) June 6, 2023
Wholesale Foreign Exchange Auction Results – 7 June 2023 pic.twitter.com/gn75yC3o93
— Reserve Bank of Zimbabwe (@ReserveBankZIM) June 7, 2023
We can only be sure there will be more instalments in Zimbabwe’s greatest soap opera. We shall monitor the market and the authorities as they respond to the new dynamics.
