The Reserve Bank of Zimbabwe's market interventions, which saw US$50 million being injected into the interbank foreign exchange market in October alone, have been lauded by economic analysts as crucial for the durable stability of the Zimbabwe Gold (ZiG).
Experts say the efforts to curtail exchange rate volatility and ensure liquidity align with the country's economic objectives, particularly as Zimbabwe prepares for the agricultural and festive seasons.
This follows a brief period of volatility between July and September 2024, which the central bank attributed to growing pipeline demand for forex against limited supply on the formal market.
This resulted in forex seekers using the illegal black market, driving the open market rate higher and triggering price increases in a market in which prices are indexed to the exchange rate.
RBZ Governor Dr John Mushayavanhu, in a recent statement, explained that the interventions in October were aimed at smoothing the mismatches between supply and demand in the foreign exchange market, which tended to intensify toward the year's end.
"During the past three weeks of October 2024, the Reserve Bank has injected about US$32 million into the interbank foreign exchange market to smoothen the mismatches between supply and demand," Dr Mushayavanhu stated, pointing to the increased demand for foreign currency to support the agricultural sector and seasonal needs.
Dr Mushayavanhu added that in response to market dynamics, the RBZ had executed a US$25 million foreign currency sale on October 24. This sale was intended to meet a surge in pipeline demand for forex for the 2024/2025 agricultural season.
Despite the RBZ's offer, the market uptake was US$19 million, reflecting a liquidity constraint among prospective buyers of foreign currency.
"The recent market intervention has brought the cumulative participation of the Reserve Bank in the WBWS market to US$50 million in October 2024 alone," Dr Mushayavanhu noted.
Economist Gladys Shumbambiri-Mutsopotsi expressed confidence that the RBZ's actions would bolster economic stability, citing the interventions as timely measures that address Zimbabwe's demand for foreign currency during a critical period.
"The central bank's proactive engagement has brought much-needed relief to the market," Ms Shumbambiri-Mutsopotsi said.
"By providing liquidity and preventing drastic swings in exchange rates, the RBZ is working to safeguard purchasing power and maintain price stability, essential components for economic resilience."
Another economist, Tinevimbo Shava concurred, saying the increased activity in the willing-buyer-willing-seller (WBWS) foreign exchange market reflected a positive shift in market dynamics.
According to Dr Mushayavanhu, the WBWS trading has seen a rise, with holders of foreign exchange, particularly exporters selling to fund their tax obligations and other local currency payments.
"We have witnessed a satisfactory increase in the willing-buyer-willing-seller (WBWS) foreign exchange trading activities," Dr Mushayavanhu reported.
Mr Shava explained that the WBWS activity would grow confidence in the local currency, ZiG, and in the RBZ's capacity to manage supply-demand dynamics effectively.
"This level of intervention strengthens the stability of the ZiG, making it more predictable for businesses and investors who rely on it for critical payments," Mr Shava said, highlighting that a stable exchange rate helps support long-term planning across various sectors, from retail to manufacturing.
The interventions come as Zimbabwe gears up for its agricultural season, where foreign currency is needed for imports of seed, fertiliser, and machinery.
Agronomist Sheila Macheka noted that the support would be essential for farmers' early preparations, especially as the nation faces the possibility of a La Niña weather pattern.
"The central bank's foreign currency injections come at a time when we need to stock up on inputs to ensure that farmers can prepare effectively," Mrs Macheka said, emphasising that La Niña could bring unusual weather conditions.
"Having timely access to resources and foreign currency will help mitigate potential agricultural disruptions and maintain productivity."
According to the RBZ, a key challenge has been the end of the tobacco selling season, which traditionally contributes significantly to foreign exchange inflows.
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With these inflows reduced, the RBZ noted a slowing supply to the WBWS market and a rising pipeline demand, which averaged US$15 million over the past three weeks.
To manage this situation, the RBZ has provided foreign currency as needed to maintain market equilibrium.
While these interventions have eased market pressures, the RBZ affirmed its commitment to a tight monetary policy to ensure reserve money is always fully backed.
"The Reserve Bank will continue with its tight monetary policy stance and ensure that reserve money is fully backed at all times," Dr Mushayavanhu asserted, underscoring the central bank's vigilance in maintaining monetary stability.
The central bank's measured approach, analysts agree, aligns with its objective of sustainable economic growth.
Through stabilising the foreign exchange market and securing the local currency's value, the RBZ's interventions are projected to lay the groundwork for a steady fourth quarter, supporting both the agricultural sector and broader economic demands.
