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Golden leaf fails to spur sluggish market

Eric Chiriga



ZIMBABWE’S tobacco sales season, which commenced a fortnight ago, has failed to inject life into the interbank foreign exchange market, which is

struggling to get enough volumes to move the exchange rate, businessdigest can reveal.


Sources said while the initial movement had been prompted by foreign currency volumes on the official market, a second adjustment of the local unit against the greenback had been ordered by the central bank governor, Gideon Gono.


Zimbabwe’s troubled currency therefore moved by a cumulative 2% in the past two week.


The initial movement, which saw the Zimbabwe dollar losing ground to the US dollar by 1%, had been prompted by a three-month record US$6 197 727,30 in traded volumes, but sources indicated this was not from tobacco receipts.


Sources said Gono had last week instructed bankers to move the exchange rate marginally, but the central bank had not given reasons for the move.


The rate recently made its first movement on April 26 when the Zimbabwe dollar lost 1% from $99 201,58:US$1 to $100 193,60:US$1 after the market recorded purchases of US$6 197 727,30 against sales of US$6 142 736,27.


The rate further moved by another 1% on May 2 to settle at $101 195,54 to the greenback.


The purchases which affected the May 2 rate adjustments amounted to US$1 251 676 against sales amounting to US$1 000 264,86.


The rate had been fixed at $99 201,58 against the greenback since January when Gono introduced the volume-based system.


“It’s highly unlikely that we’ll see a movement of the exchange rate in response to the tobacco sales,” a banking sector analyst told businessdigest. “Besides that, tobacco farmers are holding on to their crop,” she said.


She said the amount of foreign currency generated from the tobacco sales was too low compared to the volumes required for the rate to move.


Another analyst said the receipts from tobacco sales had not positively impacted on the interbank exchange rate.


“The movement of the interbank rate just coincided with commencement of the tobacco selling season,” he said.


He said the second movement of the rate was without a corresponding movement in the volumes.


Since it is volume-based, exchange rate movements depend on the amounts traded, which have to reach US$5 million for the lowest adjustments to occur.


Daily volumes below US$5 million trigger no adjustment to the day’s exchange rate, while trades ranging between US$5 million and US$10 million will see a +/-1% on the mid-rate.


Between US$10 million and US$15 million will in turn see an automatic adjustment to the exchange rate either side of 1,5% and volumes exceeding US$15 million will be rewarded with a 2% adjustment.
Government is under increasing pressure to devalue the Zimbabwe dollar despite announcing a 35% tobacco support framework.


Local economists say the volume-based system does not work and there is a need to have the rate determined by market forces.


However, Gono has defended the volume-based adjustments to the exchange rates, saying they had been necessitated by abuse of the interbank system, where “even US$10 transactions were seen to be pushing the rate by inordinate quantum”.


“It has become necessary that the market-determined exchange rate fluctuate in line with actual volumes traded in the market. Occasions as have been noted over the past quarter where the exchange rate depreciated, even on days where as little as under a quarter of a million US dollars was traded, reflecting the need for the foreign exchange market to be reformed further,” Gono said.


On the parallel market, the Zimbabwe dollar traded weakly at an average of around $213 000 to the US dollar. Buyers’ rates were quoted at around $211 000, while sellers’ rates were indicated at around $222 000 to the US dollar.

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