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Zimbabwe: Fuel Price Hike Looms As Gov't Scraps 1 - 1 Exchange Rate for Oil Firms

May 21, 2019

Zimbabweans should brace for another hike in fuel prices as Reserve Bank of Zimbabwe (RBZ) governor, John Mangudya Monday ordered a stop in the 1:1 exchange rate window government had extended to Oil Marketing Companies (OMC).

In a statement Monday, Mangudya ordered the use of the interbank market to promote the efficient use forex and to "minimise and guard against incidences of arbitrage" in the economy.

"There shall be only one foreign exchange rate to be used in the market for the importation of all goods and services," Mangudya said.

"This means that 1:1 exchange rate 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."

Mangudya went on to say, as previously advised, the apex bank was proceeding with its plans to make US$500 million draw down from an offshore line of credit to supplement the country's foreign exchange receipts in order to underpin the interbank foreign exchange market for the purpose s of meeting foreign payments 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 buyer basis," Mangudya said.

"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.

"The LCs will also be priced at the prevailing interbank foreign exchange rates."

The central bank chief also said that banks have been directed to effectively apply the willing-seller willing-buyer principle to ensure that the interbank foreign exchange is reflective of market conditions.

"Accordingly, banks must ensure that there are no moral hazards in the operation of the interbank foreign exchange market," Mangudya said.

"In this regard, all foreign exchange requirements for banks for their own use that includes divided payments, subscription fees etc, would need prior exchange control approval for the proper conduct of interbank foreign exchange market.

"Similarly, banks should discontinue twinning arrangements for their customers as this undermines the efficient operations of the interbank foreign exchange market."

 

Credit: New Zimbabwe

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