“The auction rate is the real market rate”

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The herald

Golden sibanda

THE exchange rate at auction represents the appropriate market trends contrary to the artificial perception that the parallel market means the “real exchange rate,” a senior Treasury official said.

Finance and Economic Development Secretary George Guvamatanga said so in his remarks during the 2021 Monetary Policy Review webinar on Tuesday.

He said the government was unhappy with the extent of market indiscipline which resulted in gratuitous and unjustified price increases.

This despite the fact that the majority of the major producers and importers obtain foreign exchange from the auction.

Significant prices were seen between December 2020 and January, and to some extent in February of this year, after the parallel market exchange rate edged up from $ 100 to around $ 110 per US dollar.

Following this week’s auction, the Zimbabwe dollar is now trading 0.1 percent lower than the US dollar at $ 83.88 versus $ 83.75. The crazy price hikes, which threatened to explode inflation last year, were sparked by currency volatility, in the absence of a stable market rate.

Mr Guvamatanga said people need to move away from the conception that the trend of the free market is the real exchange rate, because such an assumption is not supported by economic or empirical evidence.

He admitted that the parallel market rate should be higher than the official rate, but disagreed with the huge margins that were being achieved.

He said that, as has happened in the recent past, price dynamics over the past two months signify market indiscipline, leading to potential market failure.

Without mince words, the Treasury chief said the government would not hesitate to intervene in the market to prevent failure if necessary, although this is not the desired course of action.

He said that, as has happened with mobile network operators on mobile money, the government is able to step in and restore sanity in the event of market failure.

“We are very concerned about the extent of the current levels of indiscipline and the government strongly supports the action of the Reserve Bank to (impose) the necessary sanctions on those who abuse the auction system,” he said. -he declares.

He said the government is very concerned about the level of price increases seen over the past two months, which authorities consider unjustifiable. This is especially the case because mixed inflation figures show that it increased by less than 5% during the period in question.

Mr. Guvamatanga said he strongly disagreed with the claim that major retailers abide by permanent forex rules, “no they are not.”

He said retailers hiked prices 30 to 60 percent on a number of key products and then applied the auction rate to convert the US dollar price to local currency.

Mr. Guvamatanga stated that compliance
It was not for traders to apply the correct bid rate when converting prices, but “what you did for the price in US dollars”.

The Treasury Secretary said there was no mathematical, scientific or economic justification for a gratuitous price increase, which seemed to follow the dynamics in the free market, seen as the real rate.

He objected to the idea that a certain percentage increase in the cost of a key input should trigger a similar price increase margin for any business, as if that operator specializes in trading that particular input. .


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