RBZ starts clearing auction forex backlog

The Reserve Bank of Zimbabwe (RBZ) yesterday says it has started the process to clear nearly US$200 million of the foreign currency backlog on the auction market after receiving the requisite funds from Treasury.

The bank revealed this in a statement released yesterday, as results of the Tuesday forex auctions showed the bank’s commitment to allowing the market to lead the price determination.

This follows previous pledges by the Government that it would provide funds to clear the ring-fenced backlog on the RBZ run weekly foreign exchange Dutch auction system.

“This will go a long way in restoring confidence in the foreign exchange auction system as well as  establishing the foreign exchange market,” said RBZ governor Dr John Mangudya.

“The bank continues to urge foreign auction participants and banks to observe and uphold principles of good corporate governance and self-discipline to ensure high standards of business ethics and transparency for the stability of the economy in the short to medium term.”

The backlog in foreign currency settlement on the auction system had resulted in the spiralling of parallel market premium as importers sought quick access to foreign currency on the alternative market.

The Zimbabwe dollar exchange rate crossed the psychological $100 mark barrier against the US dollar after sliding to $105,69/US$1  on the Reserve Bank of Zimbabwe weekly auction yesterday.

Meanwhile, over the past seven weeks the auction rate has gradually followed market sent easing by 19,36 percent  against the US dollar to settle at $105,69 in the last auction this week.

This comes after the RBZ pledged it would always allow the market to decide the exchange rate direction through the auction market, as has been clamoured for by industry and commerce.