HomeBusiness DigestFour months on, RBZ yet to set up exchange rate board

Four months on, RBZ yet to set up exchange rate board

Paul Nyakazeya

THE Reserve Bank has not yet established the much-awaited Exchange Rate Impact Assessment Board (ERIAB), four months after central bank governor Gideon Gono

announced plans to set up the institution.

ERIAB was expected to regularly review the exchange rate in line with inflation.

The local currency has been under sustained pressure due to hyperinflation, currently at 1 070% year-on-year for October.

Although the local currency has depreciated by an average of 4% against a basket of major trading partners’ currencies since August, analysts said this was far from reflecting the fair value of the currency since a devaluation made in August.

ERIAB was expected to monitor and review the exchange rate monthly and make recommendations to the Reserve Bank on the fair value rate for the currency on the foreign exchange market.

Gono devalued the local unit by about 60% to $250 against the benchmark US dollar from $101.

Sources indicated that there was no talk within central bank corridors of any imminent establishment of the ERIAB, suggesting that Gono may have completely changed his mind on the issue.

“The issue has not been a subject of discussion ever since the governor made the announcement in July. He has not moved an inch in setting up the board,” a source said.

Sources said market players had lost confidence in the monetary policy in respect to the management of the exchange rate given the inconsistent and lukewarm approach to the issue by Gono.

Recently, the Chamber of Mines wrote a letter on behalf of gold miners, saying the failure to depreciate the local unit on the foreign exchange market posed a serious threat to the profitability of gold mining operations.

The market had hoped that a professional body would recommend “significant monthly devaluation” reflecting the hyperinflationary environment in the country.

A local financial institution said in a recent commentary that Zimbabwe’s dollar “remained highly overvalued based on the purchasing power parity argument”.

Analysts said the purchasing power parity exchange rate should be at $369 against the US dollar. The parallel market, which reflects demand and supply fundamentals is trading the greenback at over $2 000.

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