HomeBusiness DigestRBZ still to act on exchange rate body

RBZ still to act on exchange rate body

Paul Nyakazeya

THE Reserve Bank of Zimbabwe has not yet established the much-talked about Exchange Rate Impact Assessment Board (ERIAB), an institution that was expected

to monitor and review the exchange rate since a devaluation made two months ago.

The development had raised serious concerns in the market where dealers said foreign currency holders were becoming reluctant to dispose of their foreign cash holdings because of uncertainty over the establishment of the board.

Gono had promised to introduce the ERIAB after ditching the lifeless volume-based exchange rate system that had kept rates stagnant due to lack of volumes.

The volume-based system, under which rates could move by a certain margin only after a prescribed amount of transactions took place on the market in a single day, had been adopted on January 24. Market analysts said there was growing apprehension in the market as foreign currency holders felt the local currency was now significantly overvalued.

One analyst said the currency might now be overvalued by about 30% if the last devaluation was considered to have been the appropriate rate for the local currency.

A bank economist who declined to be named said since 21 days had elapsed in August, the market had begun losing confidence in the monetary policy in respect to the management of the exchange rate.

The economist said the market was expecting a more significant devaluation that would bring the exchange rate somewhere near parallel market levels where sellers were receiving a premium of close to 80% on the official rate.

But sources said that there were no indications the central bank was likely to set up the board anytime soon, with insiders saying the issue had not been a subject of discussion ever since Reserve Bank governor Gideon Gono made the announcement in July.

Gono, who devalued the Zimbabwe dollar from $101 to $250 against the greenback during his monetary policy review on July 31, said the ERIAB would meet every month to review developments in the foreign exchange market.

The central bank would act on advice from the ERIAB, Gono said, reviewing the exchange rates to levels recommended by the board.

Gono said the board mandate would be to monitor and review the exchange rate monthly “under a new flexible policy”.

Sources told businessdigest that the Reserve Bank “had not moved an inch” in setting up the board.

Gono, they said, felt under no pressure to establish the board as the foreign currency situation was showing no sign of improvement.

“It is difficult to manage a commodity that is not available,” said David Mupamhadzi, a bank economist, responding to concerns over the possibility of a properly functional exchange rate board.

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