Government has, with immediate effect, removed the 1:1 foreign currency exchange rate for the procurement of fuel by Oil Marketing Companies (OMCs), which will result in the interbank market being used. Reserve Bank of Zimbabwe (RBZ) Governor Dr John Mangudya yesterday said the move sought to promote the efficient use forex and to “minimise and guard against incidences of arbitrage” in the economy.
“The Reserve Bank of Zimbabwe is pleased to advise the public that with effect from 21 May 2019, the procurement of fuel by the Oil Marketing Companies (OMCs) shall be done through the interbank foreign exchange market,” said Dr Mangudya.
“There shall be only one foreign exchange rate to be used in the market for the importation of all goods and services. This means that the 1:1 exchange rate that was being used by OMCs for the procurement of fuel will be discontinued with immediate effect.
“The new position is necessary to promote the efficient use of foreign exchange and to minimise and guard against incidences of arbitrage within the economy.”
The decision to discontinue the 1:1 exchange rate for fuel comes against the background of concerns by market watchers that some beneficiaries of the scheme were abusing it, hence the continued fuel supply bottlenecks in the country.
Government is also set to be relieved of pressure of sourcing forex for OMCs. The RBZ introduced the interbank market for forex in February, in a bid to formalise transactions that had largely been taking place on the parallel market. Government is working on making the interbank market more “efficient” to allow manufacturers and individuals to readily access forex.
Currently, there are concerns that very few, if any industrialists and individuals, are getting forex on the interbank as the market continues to be dominated by more buyers and no sellers.
Finance and Economic Development Minister Professor Mthuli Ncube told Parliament last week that nostro foreign currency (FCA) accounts now have US$800 million.
Prof Ncube said Government is now “fine-tuning” the interbank market to make it easy for individuals and manufacturers to access the funds, in a move that will see prices of goods and services declining.
Over the weekend, RBZ Governor Dr Mangudya said there was US$500 million from an offshore line of credit that was going to be channelled towards the interbank market.
Dr Mangudya yesterday said the RBZ was “proceeding to make a drawdown of US$500 million” from the offshore line of credit to supplement the country’s foreign exchange receipts in order to underpin the interbank forex market.
The drawdown is designed to meet foreign payment requirements of businesses and individuals.
“The facility will be disbursed into the economy through the interbank foreign exchange framework at the prevailing interbank foreign exchange rate on a willing-seller willing-buyer basis.
“Over and above these initiatives, Letters of Credit (LCs) shall continue to be used for the importation of essential commodities such as fuel, grain and cooking oil,” said Dr Mangudya. The LCs will also be priced at the prevailing interbank foreign exchange rates.
The interbank rate was US$1:RTGS$3,4832 yesterday against about 1:5,5 on the parallel market. Dr Mangudya said the RBZ has since directed banks to effectively apply the willing-seller willing-buyer principle to ensure that the interbank foreign exchange market is reflective of market conditions.
He explained that banks must ensure there are no moral hazards in the operation of the interbank foreign exchange market. “In this regard, all the foreign exchange requirements for banks for their own use that includes dividend payments, subscription fees, etc, would need prior Exchange Control approval for the proper conduct of the interbank foreign exchange market.
“Similarly, banks should discontinue twinning arrangements for their customers as this undermines the efficient operation of the interbank foreign exchange market,” said Dr Mangudya.