THE narrowing of the gap between the parallel market and official exchange rates, from a high of 140% in May to current levels between 5% and 15%, is an important step towards eliminating trading opportunities. arbitrage, which were fueling futures price patterns and inflationary pressures, Reserve Bank of Zimbabwe (RBZ) Governor Dr John Mangudya said.
This week, the official exchange rate is pegged at $621.5 at the Foreign Currency Auction System, compared to parallel market rates of between $700 and $850 per US dollar. In the past, the spread between the two was almost double the official rate.
The latest market stability has been hailed by business leaders and economic analysts who attribute it to the effectiveness of corrective policy measures taken by the government.
These include tightening the money supply and lending rates, introducing gold coins, improving the formal currency auction system, adopting a value for money system for contractors and government suppliers, among others, who have been credited with restoring market discipline by limiting the pass rate. – by effects on inflation.
Following a recent Monetary Policy Committee (MPC) meeting, Dr Mangudya said Apex Bank was impressed with the positive results.
“The MPC expressed satisfaction with the positive impact of recent policy measures, which have led to a significant decline in month-on-month inflation from 12.4% in August 2022 to 3.47% in September 2022,” he said in a published statement. Tuesday.
“The decline in month-on-month inflation in turn caused annual inflation to fall to 280.4% in September 2022 from 285.1% in August 2022.”
Regarding exchange rates, Dr Mangudya said the committee expressed satisfaction with the progress made in the convergence of the parallel market and the exchange rates of voluntary buyers and voluntary sellers.
“The foreign exchange premium has declined significantly from a high of 140% in May 2022 to current levels of between 5% and 15%, which is in line with regional and international standards,” Dr Mangudya said.
“This positive development on the exchange rate front should go a long way to eliminating arbitrage opportunities, which were fueling forward pricing models and thus fomenting unfavorable inflation and exchange rate expectations.”
The committee had forecast that annual inflation would begin to decline this month, after plateauing in August. Economic observers have hailed the recent stability in the prices of basic goods and services, which have seen some commodities such as fuel and cooking oil continue to fall following the adoption of corrective measures by the government and the central bank.
Dr Mangudya said the committee is committed to ensuring that the current trend of disinflation is maintained, in the short and long term, through the maintenance of tight monetary policy.
He said the committee expressed confidence that the favorable environment in the external sector, reflected by the robust performance of foreign exchange earnings, will give further impetus to the achievements relating to exchange rate and price stability.
“Foreign exchange earnings were $7.7 billion as of August 31, 2022, an increase of 32.4% from the $5.8 billion recorded during the same period in 2021.
“Foreign exchange receipts compare favorably with corresponding foreign payments which amounted to $5.1 billion as of August 31, 2022, translating into a surplus foreign exchange position with positive implications for the stability of the external sector,” said Dr Mangudya.
To this end, the committee decided to maintain the bank’s key rate and the medium-term lending rate at the current levels of 200% and 100%, respectively.
The rate would be held until lasting stability, as measured by a sustained decline in month-on-month inflation to desired levels below 5%, is achieved.
The committee also decided to further liberalize the foreign exchange market by increasing the maximum amount that entities can buy from banks for bona fide foreign payments under the voluntary buyer and voluntary seller system from the current level of 20 000 USD to 100,000 USD per week. by entity.
In June, the RBZ raised the interest rate on loans from 80% to 200% per annum, citing the need to bring them in line with prevailing inflationary developments, among other recent moves to rein in rate distortions exchange rates and price volatility.