Expert says RBZ moves to achieve long term exchange rate stability

Business Reporter

RESERVE Bank of Zimbabwe (RBZ) recent sustained efforts to clear the outstanding backlogs on the foreign exchange auction is expected to further stabilise the local currency while attaining exchange rate equilibrium, an economic expert has said.

Unpacking the current developments in the economy, top economist Persistence Gwanyanya said the recent move by the central bank which saw the unlocking of yet another US$100 million to offset backlogs is a move in the right direction.

The amount comes shortly after the RBZ recently cleared nearly US$200 million ring-fenced foreign currency backlog on the auction system.

“The key question is how far is this going to restore equilibrium between the interbank and parallel market? This means rate convergence is not the policy maker’s key concern but achievement of equilibrium, which is essentially currency stability,” he said.

In economic terms equilibrium is the long-term exchange rate that equals the purchasing power parity (PPP) of a currency in an economic system where all goods are traded and where markets are fully efficient.

Such convergence, proposed by the “PPP theory of exchange rates” would imply that the same price levels should be observed across the nation.

“Comforting is the fact that the funding coincide with the cyclical pick up in forex flows in the country as tobacco marketing season is set to open end of  March and mineral production picks up as the rain season comes to an end,” he said.

He said going forward as indicated in the 2022 Monetary Policy Statement and communiques, government and the RBZ will leverage on Special Drawing Rights (SDRs) to unlock private Nostros.

“We expect normalisation of the auction funding in the few months ahead. Though the country may need to import maize to mitigate the effects of drought, the impact on currency stability will be minimal. “Grain Marketing Board is still selling maize to the private sector though in reduced quantities. Maize imports are now open but using own resources and not the Auction,” he added

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