July 24, 2019 / 2:36 PM / 3 months ago

UPDATE 2-Zimbabwe c.bank eases forex rules for some in bid to improve dollar flows

* Forex holders exempted on domestic transactions

* C.bank hopes to unlock $1.3 bln held by firms, individuals (Adds detail, quote)

By Nelson Banya

HARARE, July 24 (Reuters) - Oil firms, chrome miners, embassies and international organisations in Zimbabwe can use foreign currencies for local transactions, the central bank said, easing rules for some sectors in a bid to boost the flow of dollars in the economy.

Last month, Zimbabwe banned the use of foreign currencies in domestic transactions after renaming its RTGS currency Zimbabwe dollar and making it sole legal tender, ending a decade of dollarisation.

The exemption, announced on Wednesday and which the central bank hopes will unlock $1.3 billion held in banks by exporting companies, individuals and international organisations, is the latest unexpected policy change by the government. It could embolden critics who argued that last month’s currency reforms were hurried.

The ban on domestic use of foreign currencies caught the market by surprise as only a week before, President Emmerson Mnangagwa and Finance Minister Mthuli Ncube had repeated a pledge to only introduce a local currency at the end of this year.

The new rules have stoked inflation, which soared to a new 10-year high of 175.66% in June, raising fears of the return of hyperinflation of a decade ago.

Those holding foreign currency have been reluctant to sell on the official interbank market, where the Zimbabwe dollar has slid by 30% since June 24 to trade at 8.9 to the greenback on Wednesday.

In a circular to banks seen by Reuters, the Reserve Bank of Zimbabwe said those earning foreign currency would be allowed to buy fuel in dollars and that chrome mining firms and smelters could buy chromium from small scale producers in forex.

“To facilitate increased accessibility of fuel in the country and to reduce pressure on the inter-bank foreign exchange market, direct fuel imports are still permissible,” the central bank said in the circular.

Shortages of fuel, dollars and medicines and rolling power cuts lasting 18 hours a day are throttling an economy grappling with a severe drought that has cut the staple maize harvest by half.

Analysts say currency reforms in a country where the population is distrustful of government economic polices and the national currency can not quickly fix the deep problems that have constrained economic growth. (Reporting by Nelson Banya Editing by Gareth Jones and Emelia Sithole-Matarise)

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