HARARE, Zimbabwe, – The past three weeks have seen a noticeable rise in parallel market exchange rates, despite the Reserve Bank of Zimbabwe’s (RBZ) efforts to stabilize the market through the injection of US$50 million.
Analysts suggest that the parallel market rates, though concerning, might reflect the actual dynamics of Zimbabwe’s foreign currency market rather than inefficiencies.
The current regulations restrict suppliers from accessing foreign currency from the official market if they have funds in their nostro accounts. The RBZ insists that foreign currency is available but requires entities to use up their nostro balances before participating in the official auction system.
However, businesses argue that this policy limits their ability to save in their preferred currency and hampers their capacity to manage multiple transactions simultaneously.
Parallel Market: A Reflection of Reality or a Misconception?
Tafara Mtutu, an economic analyst, explains that the supply of USD in the market is not keeping pace with the supply of Zimbabwean dollars (ZiG), especially in recent weeks. This imbalance, he says, is causing a divergence between official and black-market rates. “When businesses cannot secure USD from the official channels, they inevitably turn to the parallel market,” Mtutu noted.
Economist Enoch Rukarwa adds that the fluctuations in the parallel market rate are driven more by behavioral factors than by fundamental economic shifts. “Local exchange rate developments are influenced by a variety of factors, including market behavior, central bank policies, government actions, and overall economic conditions. Ensuring exchange rate stability requires addressing these elements comprehensively,” Rukarwa said.
The RBZ, however, maintains that the rise in the parallel market premium does not align with the country’s macroeconomic fundamentals, which they assert remain strong. The RBZ Governor pointed out that the higher parallel market rates are more reflective of forward pricing strategies employed by some companies rather than actual foreign currency trading activity.
“The rates seen in the parallel market are often factored into the pricing of goods and services, but actual trades in the alternative market have remained low since the introduction of the structured currency system,” he argued.
Local USD Demand Driving Parallel Market Activity?
For some analysts, the push towards the parallel market is not primarily driven by money printing but rather by the demand for USD to meet local financial obligations. Analyst Michael Hungwe commented that companies predominantly earning revenue in ZiG are finding it difficult to fulfil their suppliers’ USD demands due to liquidity challenges in the official foreign currency channels. This situation, he argues, forces them to resort to the parallel market.
“The current exchange rate dynamics are more about the demand for local obligations than about money printing,” Hungwe said, emphasizing that the challenges in accessing funds from the interbank market are a significant factor behind the surge in parallel market rates.
As the debate continues, it remains to be seen whether the RBZ’s measures will effectively stabilize the exchange rate or if businesses will continue to rely on the parallel market to meet their foreign currency needs.
Source: Business Weekly