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Is Zimbabwe edging toward forex rate stability?

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The Zimbabwe dollar (ZWL) weakened by just 0.48 percent in the latest foreign currency auction to a weighted average of $82.91: US$1 from $82.56.

The foreign currency auction system appears to be working increasingly efficiently due to the narrowing of the bid band between the highest and lowest successful bid.

The highest bid for the main auction was 88.38, and the lowest bid was 80, representing the tightest range since the forex auction system began in June, while the highest bid on the SMEs board was 85, while the lowest bid stood at 78.

Zimbabwe dollars

Analyst Persistence Gwanyanya is of the opinion that the official rate is nearing equilibrium.

“It means we a fastly approaching the equilibrium exchange rate. We can only expect the parallel market rate to strengthen to this equilibrium rate and the tight liquidity conditions currently obtaining in the market support this imperative.

“We don’t expect the parallel market to be completely eliminated or rates to perfectly converge, but rather, the gap between the parallel and auction rates to narrow significantly, and its comforting that this is happening.

“If this traction continues, by year end we should expect convincing rate and price stability, which is necessary to drive inflation down.

“Stability is the precondition for investment and therefore production and growth,” he said.

“Suffice to mention that expansion of the supply side is necessary to sustain stability, and therefore confidence in the economy.”

In the latest auction, the 8th since the system was launched in June, valid bids alloted US$13.8 million on the main board, while US$519 000 was alloted on the SMEs board.

Raw materials accounted for the majority of alloted foreign currency on the main board at US$5.26 million, while the same segment also accounted for the majority of foreign currency alloted on the SMEs board at US$180 953.

Eddie Cross/Dr John Mangudya

Economist and advisor to Zimbabwe’s central bank Eddie Cross said there is now need to improve on the volumes.

“The market is working. Now we need to get the volume up and the rates strengthen,” he said.

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