HARARE – The Zimbabwean dollar (ZW$) has experienced a significant recovery for the second time in a week, gaining 10.2% on the Reserve Bank of Zimbabwe’s Wholesale Foreign Exchange Auction.
The increase in value is attributed to reduced access to the local currency. In response to the depreciation of the ZW$ last month, the Treasury implemented several measures to promote the usage of the local currency, including accepting the ZW$ for tax payments and lifting import restrictions on basic goods to increase consumers’ access to essential commodities.
These measures, along with existing instruments to control money supply growth, have led to increased demand for the ZW$, as it is being used more widely instead of being channeled into the parallel market as had been the trend in the past.
During the Wholesale Auction, where banks purchase US dollars for onward selling to their clients, the floor price decreased to US$1: ZW$5,739 from the previous week’s premium of ZW$6,326, resulting in a significant gain of 10.2%. Out of the available US$20 million, banks only purchased US$3.95 million.
Economist Persistence Gwanyanya, who is also a member of the Reserve Bank of Zimbabwe’s Monetary Policy Committee, expressed concern about the risk of over-tightening as banks were unable to fully utilize the foreign currency on offer during the auction.
However, Gwanyanya found comfort in the increased enquiries for voluntary liquidations by large entities, which indicates pressure on them to raise ZW$ for tax payments, duties, and wages. He also highlighted the need for improved financial intermediation and market making by banks, urging treasurers to enhance their performance in this regard.