Interbank market fails to gain traction
TRADE on the forex interbank market continue to lag demand with the daily average value softening over the last 4 weeks.
According to RBZ exchange control director a total of $155 million has been exchanged on the interbank market since February.
The interbank market followed the promulgation of a partial exchange rate float in February. An entry forex rate of 1:25 was put to the market and this has since gravitated southwards to 1:6 as at last Friday.
The new currency RTGS$ has thus lost over 60% on the interbank market since February as it struggles to find a balance in early volatile trades.
According to the RBZ official quoted by the Chronicle, most of the liquidity so far exchanged on the interbank is provided by the RBZ showing a lack of depth and low acceptability by private players. Companies have contributed only 16% to the $155 million exchanged.
Given the low daily average value of interbank trades at $1.9 million it is likely that the formal exchange rate will keep plunging against the US dollar.
Demand remains high on the interbank and the low averages speaks to low supply, the resultant gap of which causes further rate weakening.
It is estimated that Zimbabwe demands a total of about $10 million daily to satisfy import demand using the raw 2018 trade data. Consumption demand levels have however since gone down from last year and the average forex demand has followed suit.
It is estimated that there is a serious foreign payments backlog valued at over $500 million accruing from prior years although ring-fenced, much of these outstanding payments put further pressure on the exchange rate.
Likewise RBZ’s cap on the daily rate also restricts volume of trades per each day which breeds off market twinning trades.
The authorities however maintain that the RTGS is undervalued as ‘fundamentals’ reflect a relatively higher valuation than the obtaining rates. They agree that the rate should be in the range of 3 to times weaker than the USD and not at 6 – 9 which are going rates on the interbank and parallel market respectively.
This view has been advanced by the RBZ governor, the Minister of finance and his respective Perm Sec, the President and a PAC member industrialist Busisa Moyo. Economist Eddie Cross also Share this valuation and has said the rate will soon correct in the coming days.
The reality on the ground however keeps stunning the authorities whose major challenge has been that of getting a public buy-in regards the currency matter and appreciation of the general direction the economy is taking. — Equity Axis News