MTA closures spawn Interbank 12% forex decline

Paul Nyakazeya



INTERBANK foreign currency trade volumes declined by 12% in October after the Reserve Bank of Zimbabwe closed Money Transfer Agencies (MTAs).


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According to figures obtained from the Reserve Bank, total inter-bank foreign currency purchases and sales declined from US$16 876 085 and US$17 723 785 in September to US$15 255 199 and US$13 595 851 respectively in October.


FB Financial Holdings chief economist, Best Doroh, said the decline may have been due to the closure of MTAs, and several analysts said significant declines could be experienced in the months after October as foreign currency starts moving through unofficial channels from offshore.


“The decline in official interbank market foreign currency trade volumes reflects the closure of Money Transfer Agencies by the Reserve Bank on October 9,” said Doroh.


Reserve Bank governor Gideon Gono,closed a total of 16 money transfer operators, giving the Reserve Bank subsidiary, HomeLink, an effective monopoly on the service.


Gono alleged “non-performance and deviant behaviour by most players in this sector” which he said was leading to diversion of foreign currency sent through the MTAs to a thriving parallel market.


While the US dollar and British pound are pegged at $250 and $478 on the interbank, they are being traded above $1 900 and $3 000 respectively on the parallel market.


The central bank says the Zimbabwe dollar depreciated by an average of 2% against a basket of major trading partners’ currencies during the month of October.


The Zimbabwe dollar fell by 2%, 2%, 1% and 1% against the South African rand, British pound, Japanese yen and Botswana pula respectively.


It also fell notably by 10% against the Zambian kwacha but remained unchanged at $250 against the US dollar during the month.


Doroh however said using the purchasing power parity argument, the Zimbabwe dollar was generally overvalued in October.


“The purchasing power parity exchange rate should have been $369 to the US dollar in October,” Doroh
said.


“In the short-term, demand for foreign currency, and thus pressure on the local currency, is expected to be moderate owing to the annual shutdown period for most companies. The bulk of the foreign currency inflows over the period are expected to be through private transfers,” said Doroh.