THE Zim$ depreciated by a further 36,4% on the Reserve Bank of Zimbabwe (RBZ) Foreign Exchange Auction Tuesday in a development market watchers believe will effectively close the gap created by spiralling black market rates.

Last week the exchange rate depreciated to US$1: ZWL 1 888 down from US$1:ZWL1 404 signifying a 34% decrease inside just one week.

The latest development comes after another 14% fall recorded a fortnight ago.

A trading update released at the close of business this week shows that the official rate weakened further to US$1: ZW$ 2 577,05 down from US$1:ZW$1 888 recorded last week to signify a 36,4% decline.

The sustained devaluation of the local currency on the official market comes at a time when the parallel market rate has shot through the roof, reaching a high of US$1: ZW$4 000.

Despite rampant shock currently in the market over fears that the ZW$ is depreciating in value, market watchers believe that the recent devaluation which now gives businesses the green light to sell their products at a plus 10% of the official exchange rate will now see US$1 being pegged at ZW$2 834,75 , effectively closing the gap between the two rates.

Economist Doctor Prosper Chitambara said the latest developments are a step in the right direction.

“It is quite a positive step as it demonstrates the commitment to be realistic by liberalising the exchange rates market a bit. This removes distortions in pricing which are healthy for the smooth functioning of the economy.

“Going forward, if the RBZ Auction system is left to float the exchange rates and let the economic factors determine the outcomes , such a move would further strengthen the local currency,” he said.

Some market watchers also believe that the development also closes the gaps for arbitrage activities and may shore up the ZWL acceptability if the official rate continues to depreciate at a time when the parallel market rates are stable.

Meanwhile, the auction allotted a total US$ 15,2 million on the two platforms with a huge chunk going towards meeting productivity related costs. — NewZimbabwe

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