Forex auction to resume mid-January: RBZ

THE Reserve Bank of Zimbabwe (RBZ) says the auctioning of foreign currency at the official market will resume mid-next month as firms that transact on the auction trading platform have closed for the festive season.

The Foreign Currency Auction Trading System replaced the fixed exchange rate at the end of June this year.

The Foreign Currency Auction Trading System has since stabilised the exchange rate against the United States dollar at 81,73 as of last week.

In light of the festive season, the local manufacturing sector has gone on the traditional annual shutdown and firms are expected to resume operations mid-next month.

In its latest report, RBZ’s Monetary Policy Committee (MPC) said it has resolved that the next post-festive season foreign currency auction will be on 12 January 2020.

Moving into 2021, the bank has also said it will maintain the policy rate for overnight accommodation at 35 percent and the medium-term lending rate for the productive sector at 25 percent.

The weekly foreign currency auctioning is conducted on Tuesdays and the last trading into the festive season was held on Monday December 21 because Tuesday was a public holiday.

The RBZ said the MPC also resolved to maintain the conservative monetary targeting framework in 2021 in order to sustain price stability in the economy.

“The economy has, as a result of the foreign exchange auction system and other supportive measures taken by the Government and the bank, witnessed an increase in the production of goods and services across most of the sectors, especially during the third and last quarters of this year,” said RBZ.

In recent months, foreign currency allocation at the auction system has been averaging US$29 million. Going forward into 2021, the bank assured the public that the foreign exchange auction system would continue to be the anchor for the management of foreign currency in Zimbabwe. “Price and financial system stability shall remain the primary focus of the bank,” said RBZ.

The policy rate for overnight accommodation reflects the level at which the Central Bank believes interest rates should hover.

However, analysts have pointed out that for short-term loans, the 35 percent overnight bank accommodation rate is too high and would only be close to the ideal level if banks were extending long to medium-term loans.

Banking institutions are lending mostly between 25 and 45 percent, for individual and short-term loans, while others quote interest rates just below the industry benchmark rate, specifically for corporate loan facilities.

The overnight accommodation rate is the interest rate at which banks lend to each other to cover overnight or daily shortfalls and serves as the industry benchmark of where banks’ lending rates in the money market should be. —Chronicle