Govt acts to stabilise forex market

19 Oct, 2018 - 07:10 0 Views
Govt acts to stabilise forex market Finance and Economic Development Minister, Mthuli Ncube

The ManicaPost

Kudzanai Gerede

Business Correspondent

Government is stepping up efforts to stabilise the current foreign currency market that has been characterised by “madness’’ as local dealers on the illegal parallel market are distorting exchange rate to unreasonable levels.

The implications of this unwarranted behaviour has been the major source of inflationary pressures on the economy, experts say.

Prices have gone extremely high during the past week on account of foreign currency shortages to procure inputs and ingredients for manufacturing of various commodities.

While the official exchange rate for the local bond note currency and various electronic money against the US$ remains at par (1:1), the situation on the ground tells a much more diverse story with the rate on the parallel market currently pegged at 1 US$ equivalent to $ 3 RTGS value as of Wednesday.

Analysts have noted that the current mismatch between RTGS balances and foreign currency on the market is too wide to sustain hence the insatiable demand for foreign currency.

Finance and Economic Development Minister, Mthuli Ncube has already reiterated that Government is seized with mitigating the situation by means of improving foreign currency availability on key imports so as to ease the demand.

Recently, the minister revealed after the meeting with the African Export-Import-Bank (AFREXIMBANK) chief that Government had secured a US$ 500 million nostro stabilisation facility from the bank.

Analysts are buoyant that the current measures being put into place had a long-term benefit to the economy as these were not measures to quick-fix.

Finance Minister Mthuli Ncube has already reiterated that Government is aiming at morphing the amount of foreign currency on the parallel market back into the formal banking channels by introduction of the Nostro FCAs that will be backed thes Afreximbank facility.

Economic analyst Percy Gwanyanya told Post Business that the parallel market exchange rates were a symptomatic of insufficient currency reserves to sustain the multi-currency system and various import covers while he applauded Government for working towards stabilising nostro accounts as a prerequisite for dealing with excess demand for the currency.

“What you see here is a situation where there is an abnormal appetite for foreign currency that is keeping the parallel foreign currency market in business. Government needs to urgently boost those nostro accounts to ease this pressure and the introduction of the Foreign Currency Accounts specified for nostros is very commendable,” he said.

Exchange rates have been oscillating much on the high side of the line with the US dollar value hiking to 600 percent last week before taking a surprise nosedive to tame the US dollar against the bond note to 1: 1.7 on the parallel market.

This week has seen a steady rise once again with analysts citing that market forces were simply revealing the continuing pressure on limited foreign currency on the market.

This has been evident in fuel queues which were however slowly disappearing owing to Government foreign currency intervention. The Afreximbank facility will hence play an effective role in guaranteeing depositors of foreign currency into the Nostro FCAs that will encourage availability of the foreign currency into the formal banking channels.

Share This:

Sponsored Links