The Reserve Bank of Zimbabwe (RBZ) announced on Tuesday, June 27, 2023, that local financial institutions only managed to buy a third of the foreign currency available on the central bank’s wholesale foreign currency auction as the Zimbabwe (Zim) dollar liquidity crunch hits the market. In a Twitter post seen by Pindula News, the central bank said:
At today’s wholesale foreign exchange auction for banks, out of US$30 million on offer, only US$10 million was purchased by banks for onward sale to banks’ clients.
For the first time in many months, the Zimbabwe dollar yesterday appreciated against the US dollar. There are expectations that the exchange rate will strengthen going forward, and some predict that the exchange rate should settle at around $5,000 to $6,000 per US dollar under these conditions.
The Zimbabwean government has taken several steps to stabilise the country’s exchange rate, which recently suffered from excess liquidity in the market. These measures include the introduction of a wholesale auction for banks to buy foreign currency on behalf of their clients. The government also transferred external payment obligations from the Reserve Bank of Zimbabwe to the Treasury, increased the bank policy rate from 140% to 150%, and required the payment of all corporate taxes in local currency.
Some economists and business leaders have expressed optimism that these interventions will stabilise the exchange rate and increase the value of the local currency. Economist Tinevimbo Shava commented:
Obviously these are the effects of the demand-driving policies that were introduced and are continuously being amended. We certainly are going to see another drop in the rate as less demand is there.
We are really embracing the initiative as a step in the right direction provided it is implemented and fully realises the benefits of consolidating the use of the Zimbabwe Dollar and the exchange rate should settle at around $5 000 to $6 000 per dollar or thereabout under these conditions.
According to Bankers Association of Zimbabwe (BAZ) President Lawrence Nyazema, the local currency has been removed from the market in the past few weeks due to prudent fiscal and monetary steps. He also noted that the current Dutch Auction System is what they wanted three years ago and is seeing a constant supply of foreign currency on the official market outstrip demand. He added:
We are happy that the measures have forced those that earn 100 percent in foreign currency and had no use for the local currency are now liquidating some of their proceeds to oil the foreign exchange market, hence sustainability of the wholesale and foreign exchange market.
According to economist Dr. Prosper Chitambara, the increase in demand for the local currency has led to a situation where supply exceeds demand. He believes that going forward, the currency needs to experience pressure from its demand to maintain stability in the market. He said:
It is a positive development that the Government required companies to settle their tax obligations in local currency, I think this will help to increase and enhance the value of the local currency which should have a very strong stabilising effect on the exchange rate.
Results from yesterday’s auction indicate that the Zimbabwe Dollar slightly recovered against the United States Dollar (USD), increasing from 6,926.5764 on June 20, 2023, to 6,326.5877.