Breaking News

RBZ to stabilise exchange rate

by Staff reporter
22 February 2019 | 3480 Views
The Reserve Bank of Zimbabwe (RBZ) says it has put in place adequate safeguards to ensure stability of exchange rates after the apex bank this week floated the US dollar on the interbank market.

Chief among the safeguards are control of broad money supply, restraint in Government expenditure, Treasury Bills, Reserve Bank savings bonds, interest rate adjustments and close monitoring of banks.

The RBZ liberalised the US dollar exchange rate against Real Time Gross Settlement (RTGS) balances, bond notes and all currencies in the multi-currency basket to formalise trade in currency.

Amid a pricing chaos, which has seen prices of goods and services tracking parallel market rates, the central bank took the decision to control trade in forex to ensure exchange rates stability and fairness.

Floating the exchange rate entails denominating existing RTGS balances, bond notes and coins in circulation as RTGS dollars to establish an exchange rate between current monetary balances and foreign currency.

This comes after the realisation that it was no longer tenable to maintain the exchange rate at fixed parity of one to one, which came after wild increases in parallel market rates late last year.

Since Zimbabwe dollarised in 2009 and authorities maintained the position of the multi-currency system—anchored by the US dollar–the market took guidance on setting prices in local currencies from premiums of greenback exchange rates on the black market.

There has been palpable fear that excessive printing of electronic dollars, by the previous administration, had released too much liquidity into the market, which could fan upward swings in the floated exchange rate.

Presenting the 2019 Monetary Policy Statement in Harare on Wednesday central bank governor Dr John Mangudya, said while the country apparently had huge bank deposits not all of it were usable.

Dr Mangudya also pointed out that out of about 3,2 million bank accounts, only 10 percent of those accounts held balances in excess of $1 000 of the now RTGS denominated dollars.

He made the remarks following assertions from economists that the huge electronic dollar deposits already in the system could spark runaway exchange rate increases, which would drive inflation.

But Dr Mangudya dismissed the possibility of an exchange rate rampage saying only $1,8 billion out of total market deposits of $10,2 billion was money that was usable for transacting purposes.

"The $10 billion of deposits in Zimbabwe is made up of the following characters: $4 billion of loans and overdrafts. So when you look at $10 billion that is not (all) usable money, that's deposits.

"In that deposit, $4 billion are loans and advances to the private sector; secondly, there are Treasury Bills that have been purchased by the banks, individuals and corporates of $3 billion.

"Treasury bills are about $2,5 billion. So the other $1,2 billion to $3 billion are savings bonds that these banks and other corporates had purchased from the Reserve Bank of Zimbabwe.

"So our usable money, now called RTGS dollars in the accounts today as we speak is $1,8 billion, not $10 billion. Today we have US$451 million over and above the $150 million we have put in place.

"Let us assume we have US$500 million or US$600 million and if you add the US$450 million plus the US$600 million, that becomes US$1 billion," the central bank chief explained.

Dr Mangudya said if for instance the floated exchange rate was one US dollar to 3 RTGS dollars and US$600 million was injected into the economy, all RTGS balances would be wiped out from the market.

The central bank said banks and corporates, if that happened, would be left holding on to Treasury Bills and RBZ savings bonds only and would in fact require liquidity support from the RBZ.

He said such a scenario, to avoid further inflationary buildup of excess liquidity in the market; the central could simply raise interest rates to prevent borrowing for non-productive purposes.

Exchange rate driven prices drove inflation from 5,4 percent in September 2018 to 56,09 percent in January 2019.

"So, safeguards (are there), you can try (to temper with the system). The exchange rates are just going to go down. There is a limit to which a bank can lend money, depending on their balance sheet.

"There is also a limit to which you can borrow money from the market to go and purchase currency because they (banks) will hit you with interest rates. So, we think we have put a soft landing."

The central bank says it will monitor banks closely in the trading of currencies to deter collusion and manipulation to ensure exchange rates stability, honesty and fairness.

Dr Mangudya said the central bank will sit down with banks to indicate to them the direction it wants things to take. He also pointed out that soon banks will need liquidity cover from RBZ.

This will allow the bank to use tools at its disposal, such as the accommodation rate to control flow and amount of liquidity going into the bank to avoid putting undue pressure on exchange rates.

Forex Exchange Rate

Source: business weekly


Latest News

BREAKING: RBZ speaks on fuel prices

by Mandla Ndlovu | 20 May 2019 | 4 Views

'Arrest Nelson Chamisa' says ZANU PF Youth

by Mandla Ndlovu | 20 May 2019 | 3 Views

Obert Gutu defiant...vows to takeover MDC property

by Mandla Ndlovu | 20 May 2019 | 1 Views

'Mnangagwa will not finish his term of office'

by Staff reporter | 20 May 2019 | 1 Views

EXTRACT: The men who helped Chiwenga to execute the coup

by Douglas Rodgers | 20 May 2019 | 5 Views

Herald-Newsday fight escalates

by Mandla Ndlovu | 20 May 2019 | 2 Views

Chamisa threatens

by Staff reporter | 20 May 2019 | 6 Views

Ecocash scam exposed...CEO blocks Lumumba's partner

by Mandla Ndlovu | 20 May 2019 | 7 Views

WATCH: Prophet uses spiritual coat hanger to restore marriage

by Mandla Ndlovu | 20 May 2019 | 7 Views

Load shedding and the long fuel queues

by Dr Masimba Mavaza | 20 May 2019 | 1 Views

Trevor Ncube sings Fortune Chasi praises

by Mandla Ndlovu | 20 May 2019 | 10 Views

Mliswa tells Mnangagwa to emulate Mugabe

by Mandla Ndlovu | 20 May 2019 | 6 Views

CIOs spy on Zimbabweans in South Africa

by Mandla Ndlovu | 20 May 2019 | 8 Views

Google to remove Android from Huawei

by Mandla Ndlovu | 20 May 2019 | 3 Views

Chamisa warns of dark cloud over Zimbabwe

by ZimLive | 20 May 2019 | 7 Views

Biti vows Chamisa loyalty

by newzimbabwe | 20 May 2019 | 2 Views

Chamisa urges followers not to panic over court ruling

by Staff reporter | 20 May 2019 | 2 Views

Mnangagwa won't last 5 years, says Chamisa

by Staff reporter | 20 May 2019 | 10 Views

Mnangagwa's govt recognises MDC's 2014 structures

by Staff reporter | 20 May 2019 | 2 Views

Division: Last thing ZCTU needs at the moment

by Editorial - Newsday | 20 May 2019 | 1 Views


Muridzo rubbishes critics

by Simbarashe Sithole | 20 May 2019 | 1 Views

Nigerian to play Mugabe role in forthcoming movie

by Staff reporter | 18 May 2019 | 1914 Views

Malunga quits sex

by Staff reporter | 15 May 2019 | 6931 Views

I didn't ride on Tuku's fame, says Selmor

by Staff reporter | 14 May 2019 | 2104 Views

Tsholotsho girl shines in SA - DYNAMITE comes in small packages is the...

by Staff reporter | 13 May 2019 | 2379 Views

Jah Prayzah ditches anything associated with Mnangagwa's army

by Staff reporter | 12 May 2019 | 4218 Views

The rising popularity of Maskandi artists in Bulawayo

by Staff reporter | 12 May 2019 | 1955 Views

WATCH: Oliver Mtukudzi's widow singing Paunapopo

by Mandla Ndlovu | 01 May 2019 | 22994 Views

Samsung Gear Vr Innovator Edition For S6: The Perfect Vr Intro For Professionals

we're drenched in talk about the impending wave of consumer-facing vr headsets about to hit the market, starting at the end of 2015. by contrast, you can walk into a best buy right now and pick up the samsung gear vr innovator edition for the galax... Read More
Sergey 20 June 2015 ago

What To Look For In Video Converter Software

looking for the best video converter software? you have to compare different video converters before making a purchase.the ability to watch video on different types of devices is a wonderful thing. not so wonderful are the compatibility issues that ... Read More
Sergey 19 June 2015 ago