RBZ allots US$20,5 mln amid ZWL depreciation worries

Business Reporter

THE Reserve Bank of Zimbabwe (RBZ) Foreign Exchange Auction this week allotted a total US$20, 5 million amid growing concerns around ZWL depreciation seen in recent weeks.

A trading update released at the close of business Tuesday shows that on the Main platform, a total 283 bids were accepted receiving US$18, 3 million which largely financed productivity related needs.

Raw materials, machinery and equipment received  US$10, 1 million and US$3, 1 million respectively, chewing up more than 50% of the total amount allotted on the platform.

A similar trend was observed on the SME Auction platform where out of a total allotted US$2,24 million raw materials, machinery and equipment received US$780 117and US$680 281 respectively.

However, the developments come at a time when the ZWL has depreciated reaching levels of between ZWL 1 200 and as high as ZWL1 600 against the greenback, prompting concerns on the trends.

Analysing the current trends, economist Persistence Gwanyanya blamed the country’s limited access to global financing as chief among the causes behind the local currency depreciation.

“The recent ZWL depreciation amply demonstrates the dilemma we face because of limited of access to international capital for long term projects. When the government pays ZWL to contractors and suppliers the tendency is normally to offload the same for US$ to preserve value.

“This normally drives ZWL depreciation due to high concentration and velocity of ZWL at this segment of the market,” he said.

Gwanyanya said this explains why the Monetary Policy Committee had to come up with gold backed digital products as a value preservation option for mainly this wholesale market segment.

He added that to put the thought process into perspective, usable ZWL balances currently stand at ZWL143 billion comprising Non- Negotiable Certificates of Deposit of the amount and excess reserves of ZWL0.1bln which demonstrates that the country’s ZWL liquid capacity to buy forex is currently around the same figure.

“Assuming a rate of US$1:1000, we need US$143 million to mop up all this liquidity and if RBZ issues out the gold backed products of say 50 000, we can absorb ZWL100 billion from contractors and suppliers, thus containing currency volatilities from this channel,” he said.