Industrial productivity and boosting foreign exchange auction efficiency Focus in Zimbabwe

THE Reserve Bank of Zimbabwe (RBZ) has moved to maintain balance between promoting industrial productivity and boosting foreign exchange auction efficiency in its Monetary Policy Statement (MPS) released Friday.

Delivered under the theme “Fostering Price Stability”, central bank governor, John Mangudya set a standardised export retention threshold.

“Given the positive impact of the auction system in price stability and the need to sustain the auction, all export retention thresholds for all exporters will be at a standard level of 70% with immediate effect,” he said.

Going forward, all exporters will be allowed to keep 70% of their foreign currency earned outside the country.

In a major climbdown, RBZ abandoned the initial arrangement in which exporters were given only 30 days to use or liquidate their remaining 30 % foreign currency balances. Going forward, exporters will be allowed to use such foreign currency in 60 days.

The move will enable businesses to plan without pressure as well as encourage foreign currency deposits.

The central bank said the decision to allow the use of foreign currency in the payment of local transactions has resulted in an upsurge of US dollar deposits from US$352.4 million in January 2020 to US$404 million.

In a move aimed at keeping locally generated foreign currency within the borders, the RBZ also ordered that 20% of the foreign currency receipts of providers of goods and services shall be liquidated at the point of depositing in the Domestic FCAs.

However, the policy will not affect bank balances already existing in the Domestic FCAs and will not apply to recipients of diaspora remittances.

Activities of the Bureaux de Change were liberalised in a development that will see them increase the exchange rate spread from the current 3.5% to up to 5.0% above the auction rate.

“The bureaux de change will be required to sell at the auction at their reserve price, 80% of their balances held every Monday,” said the MPS.

This initiative will force the bureaux de change to eject excess liquidity which has been taken advantage of on platforms like Ecocash by illicit foreign currency dealers in the hiking of exchange rates.

Mangudya also announced the establishment of a toll-free line for whistle blowers to expose undisciplined businesses in the habit of double dipping through sourcing for foreign currency at the auction but proceeding to price their goods at parallel market premiums.

The Medium-term Lending Facility was set at 25% per annum with immediate effect, meaning that banks can now extend loans and reduced lending rates.

Cognisant of the Covid-19 impact on the smooth flow of business, the RBZ extended the deadline for compliance with the requirement for meeting the minimum capital levels, by one year, from 31 December 2020 to 31 December 2021.

The central bank also pegged individual daily transaction limits to ZW$5 000 and moved to allow individuals to undertake person to person transfers, person to merchant transfers and settlement of bills and purchase of airtime.