Zimbabwe’s Monetary Policy Committee which was set up to help stabilize the country’s economy is expected to hold its monthly meeting this morning and one of the key issues will be whether it will allow the 25:1 fixed exchange rate imposed by the central bank two months ago to continue.
There was an outcry that central bank governor John Mangudya had jumped the gun by imposing the fixed exchange rate, barely two weeks after Finance Minister Mthuli Ncube had introduced a managed floating rate, but this was not reversed.
The interbank rate which was at 18:1 when Ncube made his announcement had fallen to 28:1 when Mangudya brought it back to 25:1. The blackmarket rate was around 40:1.
Mangudya said the fixed exchange rate was brought back “to provide for greater certainty in the pricing of goods and services in the economy” but this never happened.
He also said that the measure will be reviewed when markets stabilise from the effects of COVID-19 which sees a long way off.
Although the blackmarket rate softened for just a few days when the country introduced the national lockdown on 30 March it has since skyrocketed and was between 56 to 63:1 yesterday according to Marketwatch.
The Old Mutual Implied Rate, which measures investor sentiment, was at 96 to 1 after having fallen to a staggering 102:1 on Tuesday.
With the official rate at 25:1, one wonders who is benefitting from this exchange rate?
Has this not opened more room for arbitrage as those with access to the cheap money from the central bank can make more money from burning that money than they can ever make in any other form of trading?
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