Finance Minister Mthuli Ncube says government is staying out of the newly launched interbank market and will only intervene to deal with any volatility. After a second day of foreign currency trading on Tuesday, trades remain largely restricted.
Two factors have drawn charges that the market is not as free as it should be. First, there has been what some see as a slow start to the market, with the exchange rate at 2.5.
Secondly, a central bank memo to banks gave a priority list for US dollar payments; 70% of allocations must go to critical imports, especially industries importing raw materials and equipment, and also to payments to foreign investors and importers of essential goods.
But Ncube insists that central bank is not manipulating the market.
“The debut of the interbank market has been successful from where we sit. We are very pleased that this market has taken off,” Ncube told reporters after Tuesday’s Cabinet meeting.
“We moved from a fixed exchange rate to a floating managed exchange rate. By managed, we don’t mean managing the average rate; we mean managing the volatility. It’s about volatility, its not about setting the rate at all. The rate is what it is in terms of market forces.”
Central bank would only “manage the volatility so as to reduce the uncertainty aspect around the mean of the rate”, Ncube said.
Previously, government has been accused of being a player in the currency markets, driving up demand for forex to feed its huge appetite for spending. According to Ncube, government’s presence in the market would cause distortions.
He said: “Going forward, anything that we do in terms of coming into the market is to manage the volatility but not to intervene. Government is staying out of the market because we are too big. If we go in there we distort the market.”
Keeping the rate of bond notes and local balances at par with the US dollar had hurt exporters, Ncube conceded. While many have said the new currency reforms are a step away from damaging controls, exporters fret over a requirement to compel exporters to offload their forex earnings within 30 days. Ncube defends this measure by saying it is “just to make sure that there is continued supply of US dollars”.
Critics however say the 30-day window, similar to regulations in South Africa, will in fact damage confidence and discourage the use of official channels.
Commenting on the interbank platform so far, Ncube said “we think things are going well on the market”.
Observers are looking at the market with a mixture of cautious optimism and doubts, but Ncube is bullish on its prospects.
“What this has done is to introduce normalcy in Zimbabwe’s exchange rate system,” he says.
“The response we are getting from foreign investors is this is good, this is the reform that’s going in the right direction.”
With full dollarisation now fading with the introduction of RTGS dollars, Ncube says this is a good thing for monetary policy.
“At least for now we have a monetary policy in action as opposed to before where monetary policy was missing in the room.”
On Friday, RBZ drip-fed banks with foreign currency to help set off rhe market. With no major inflows yet, banks have been told to give priority to productive sector, such as to exporters importing raw materials or machinery.
“All interbank market sales to individuals and corporates shall be restricted to funding of external obligations,” and banks should submit dealing reports every two hours, the RBZ ordered.