Zimbabwe: Interbank Forex Exchange Rate Advances

19 March 2020

The interbank foreign currency trading market advanced by a margin of around 30 percent yesterday to reach ZWL$ 24.32 against the American dollar (USD) from ZWL$ 18/USD previous day as it moves to narrow the gap with the parallel market exchange rate.

This is the first time it has advanced by such a margin this year although it remains way below expected price given market trends.

On the flip-side, the parallel market as of this morning was trading at ZWL$ 41/USD.

Last week monetary authorities announced measures to float the interbank market exchange rate, albeit, in a managed way, by introducing the Reuters foreign currency exchange trading system meant to ensure efficiency and effectiveness in the allocation of foreign exchange to the productive sectors and enhancing price discovery on the interbank market.

Market watchers were already raising questions over the stagnation of the interbank market rate which had been lingering around ZWL17-18/USD for months now.

"To correct this anomaly, an electronic foreign currency trading platform based on the Reuters system is being immediately put in place. This platform will allow foreign exchange to be traded freely amongst the banks and permit a true market exchange rate to be determined," Finance and Economic Development Minister, Mthuli Ncube told press last week.

However, the interbank market rate remains a distant from the parallel market rate, a development that still reflects its inefficiencies.

Analysts have advised authorities not to "manage" the floating of the interbank rate but to expose it to market forces of supply and demand.

Nevertheless the latest development has been commended as a major step towards the right direction.

"It was overdue. The interbank market exchange rate should at least continue to answer to the supply and demand forces such that it truly realizes its actual price. It is of no use to have an official trading platform that is seldom used because what was happening is companies with access to foreign currency were not seeing the benefits of selling their foreign currency on the interbank at such minimal prices yet a parallel market with a much lucrative price was just outside the door," economic analyst, Pepukai Chivore told 263Chat Business.

But whether the measures will ultimately stabilize the currency, it's yet to be determined as the parallel market rate continues to escalate unabated.

Zimbabwe since reintroducing its local currency last year has struggled to stabilize its unit of account leading to inflation of over 500 percent year on year.

Interbank marketMinister Mthuli Ncube

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