HomeBusiness DigestForex auction crumbles under heavy demand

Forex auction crumbles under heavy demand

Eric Chiriga

THE shortage of foreign currency on the auction continues to worsen as demand is now more than 20 times the amount usually available.

ca, sans-serif”>The auction can only allot a fixed US$11 million at a time after catering for essential imports like fuel and electricity.

On May 12, the total amount of bids was US$267 296 306, about 25 times more than the available US$11 million.

There were 8 291 bids 8 180 of which were rejected, a rate of 98,7%.

On the latest auction held on Monday this week, the total amount of bids was US$264 193 971, again 24 times more the US$11 million on offer. 98,8% of the 8 050 total number of the bids were rejected.

According to Finhlod, the total amount of bids surpassed the US$100 million mark at February 10 and 14 auctions, translating into demand of 9 times more than the fixed allotment of US$11 million per auction.

“The average rejection rate rose from 93% in January to 97% in February, reflecting the continued excess demand of foreign currency on the auction,” Finhold said in its Economic Update of March.

Finhold said as a result of the continued excess demand for foreign currency over supply, the Zimbabwe dollar would depreciate further against major currencies.

During March, the Zimbabwe dollar fell by 6%, 5%, 5% and 3% against the South African rand, Botswana pula, the euro and the British pound, respectively. It also fell by 1% against both the Japanese yen and US dollar.

The foreign currency auction was established by the RBZ earlier last year in a bid to get rid of a flourishing black market for foreign currency.

The Zimbabwe dollar is currently trading at US$1 to about $18 000 and one British pound to $30 000 while on the auction US$1 is going for $6 049 and one British pound for $11 480.

Local companies have been crying foul over the disparity between the official and parallel market exchange rates and their failure to access foreign currency on the auction.

In a set of financial results for the year ended December 31 2004 released by Truworths, National Foods Holdings and Radar Holdings, the companies said the exchange rate regime needed to be reviewed.

Zimbabwe is also likely to miss its annual gold production targets because of the unfavourable exchange rate and high costs of production.

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