Forex demand reaches new high

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  • Total amount allotted on this week’s auction was US$46.91 million
  • Previous record was US$42.53 million
  • Record expected to keep increasing in line with demand caused by S.I127 and increased consumer and government spending

Harare – The Reserve Bank of Zimbabwe (RBZ) foreign currency auction this week saw a new a record for total funds allotted after closing trading with a total of US$46.91 million awarded to bidders, signalling a rise in demand for foreign currency from the auction.

Of the total amounted allotted, US$38.88 million was allotted on the main auction while US$7.93 million was awarded on the SME auction.

The standing record had been set at the auction held on May 18, 2021 in which US$42.53 a total of US$42.53 million was awarded

This week also tied last week’s record for the highest bid received at ZW$90 for a single denomination of the greenback.

Going forward, it can be expected that the allotments on the foreign currency auction will remain consistent around the area of the newly set record and may even increase.

Among the key drivers of this demand for foreign currency from the auction is and will be the recently enacted Statutory Instrument 127 which illegalised the charging of a ‘Zim dollar premium’ on goods and services and compelled business to only accept U.S dollars at the official exchange rate.

This is expected to raise the need for foreign currency specifically from the auction as it will drive consumers to spend less and less foreign currency in the formal channels as a result of its undervaluing when compared to the parallel market, hindering formal businesses’ alternative means of its sourcing.

The Confederation of Zimbabwe Industries concurred with the same view in a statement they released calling for the reversal of the Statutory Instrument.

“Companies have been relying on local US dollar sales to generate the bulk of foreign currency used to sustain operations. Use of the Auction rate would result in consumers converting their US dollars to ZWL on the parallel market prior to purchasing, a practice already rampant outside the major retail chains such as Pick n Pay, OK and Bon Marche. This will deprive companies of what has become their main source of foreign currency,” CZI lamented.

Furthermore, government and consumer spending and demand for goods and services tends to increase in the second half of the year which consequently drives up the demand for raw materials by producers who will turn to the auction in order to increase their supply.

Meanwhile, consequent to the jump in demand experienced this week, the official exchange rate for the Zimbabwean dollar fell to ZW$85.25 for US$1 from ZW$85.07 in the prior week.

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