HARARE – Zimbabweans must brace for major fuel price increases within days after the Reserve Bank of Zimbabwe on Monday stopped supplying fuel companies with United States dollars at a rate of 1:1 to the RTGS dollars.

Fuel companies will now bid for foreign currency from banks using an interbank rate prevailing on the day, a major shift from the government’s failed attempts to fix the rate and keep fuel prices low.

The RBZ said the policy shift was “necessary to promote the efficient use of foreign exchange and to minimise and guard against incidences of arbitrage within the economy.”

A document circulated on Tuesday showed that fuel companies immediately proposed higher diesel and petrol prices. There were fresh fears fuel, already in acute short supply, could dry up in the market as the suppliers withhold the product while weighing up the new RBZ measures.

The fuel companies, in their proposal tabled on Monday, want the price of petrol to go up to RTGS$4.96 from RTGS$3.36, representing a 47.61 percent increase. Diesel would go up to RTGS$4.88 from RTGS$3.22 last week, an increase of 51.43 percent.

The RTGS dollar was trading at 1:3.4 to the United States dollar on the interbank market on Monday, but was far weaker on the parallel market where the US dollar was fetching upwards of 6.5.

The RBZ said it had secured US$500 million which would be used to support increased trading on the interbank market. The money is a loan from Afreximbank secured against future platinum exports, Bloomberg reported.

“There shall be only one foreign exchange rate to be used in the market for the importation of all goods and services. This means that the 1:1 exchange rate that was being used by Oil Marketing Companies for the procurement of fuel will be discontinued with immediate effect,” the RBZ said in a statement.

“Over and above these initiatives, Letters of Credit 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 RBZ said on the strength of the US$500 million facility, it had directed banks to “effectively apply the willing-seller willing-buyer principle to ensure that the interbank foreign currency market is effective.”

Few believe the RBZ’s latest measures will bring relief to Zimbabweans who are being buffeted by rising food prices, fuel and electricity shortages, and stagnant salaries.

The foreign-currency crisis is choking businesses and heaping pressure on President Emmerson Mnangagwa, who came to power after a military coup in 2017 and controversially won an election in July, promising to revive an economy.

“Investor confidence has sunk,” said Chiedza Madzima, a senior analyst at Fitch Solutions in Johannesburg. “Since elections last year, there has been a significant erosion of trust that the authorities can maintain political and economic stability and implement key reforms needed to attract investors.”

Zimbabwe revamped its currency system in February as long queues formed for fuel, medicine and other imported goods. Deadly protests had erupted a month earlier after the government more than doubled fuel prices.

The central bank’s decision to scrap a peg tying RTGS$ to the U.S. dollar at parity and let it trade on a formal market seemed to work at first.

But a lack of liquidity and transparency over which companies and individuals can access hard currency from the central bank started to raise doubts about the new system. An absence of inflows from investors, who are concerned the government’s fiscal policy is still too loose, did not help.