RBZ cuts policy rate by 1333 bps, targets 2-5 pc USD inflation annually

Zimbabwe has announced a 1333 basis point cut in the key policy rate to 130 percent down from 150 percent due to a sustained decline in inflation in the economy.

Changes in the policy rate can impact borrowing costs, investment decisions and overall economic activity.

“The bank continued to review the bank policy rate in line with inflation trends in the economy,” Reserve Bank of Zimbabwe governor, John Mushayavanhu, said while presenting his monetary policy.

“The high interest rates have gone a long way to curb speculative borrowing, which was exacerbating pressure for foreign currency.”

Monthly inflation declined from a peak of 12,1 percent in June 2023 to an average of 2,1 percent up to December 2023.

However, inflation peaked at 55,3 percent in March 2024, up from about 47,6 percent in February 2024, mainly driven by the “pass-through effects of exchange rates”.

“The potential negative impact of high interest rates on economic growth was, however, addressed through the Medium-Term Bank Accommodation (MBA) facility which had relatively lower interest rates pegged at 75 percent per annum.

“This facility has gone a long way in supporting the productive sectors of the economy,” Mushayavanhu said.

Once the currency and exchange rate have stabilised and the supplementary support measures in this new Monetary Policy Framework have been implemented, “inflation expectations should be firmly anchored towards the observed trend of domestic USD inflation, which is expected to be below 1 percent month-over-month and between 2 and 5 percent annually,” Mushayavanhu added.

The bank in December 2023 had resolved to maintain the current bank policy rate at 130 percent in line with prevailing inflation developments, complementing recently announced fiscal measures aimed at sustaining stability.

The Government has over the past year instituted a plethora of measures in an effort to stabilise inflation and exchange rate volatility, and due to the continued tight monetary and fiscal policies, annual inflation.-ebusinessweekly