Zimbabwe’s currency weakened almost 14% in the weekly central bank auction on Tuesday after Finance Minister Mthuli Ncube called for changes to how the foreign exchange market is managed.
The devaluation is the latest policy move to stabilise the local currency. While the weekly auction has been used to set the interbank rate at which businesses are meant to price their goods, it’s been criticised as overly controlled.
The currency sold for 1,404 Zimbabwe dollars per US dollar compared with 1,212 a week ago. That extends the decline this year to more than 45% of its value and brings it closer to the parallel market value of about 2,300 per greenback, according to ZimPriceCheck.com, a website that monitors official and unofficial exchange rates.
The gap between the official and black market has distorted pricing that’s helped fuel inflation and prompted a benchmark interest rate of 140% to contain costs.
The International Monetary Fund urged authorities to liberalise the exchange rate to help shore up the currency, instead of using the gold-backed digital money the government introduced last week.
“The foreign-exchange auction system will be further fine-tuned and will now auction a pre-announced envelope,” Ncube in an emailed statement on May 11. The central bank auctioned $14 million of foreign exchange on Tuesday and plans to sell $15 million at next week’s sale.
The improved functionality of the system is expected to “gradually close the gap between the parallel and official rates,” according to Persistence Gwanyanya, a member of the central bank’s monetary policy committee.
© 2023 Bloomberg
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