RESERVE Bank of Zimbabwe (RBZ) governor Gideon Gono has with immediate effect increased the secured and unsecured lending rates by 20 percentage points as he battles to rein in inflation.
The secured lending rate is now 180%, up from 160% while th
e unsecured rate has been increased from 170% to 190%.
“This is in order to maintain a tight monetary policy stance over the outlook period,” Gono said while presenting his monetary policy statement yesterday.
“We are fully aware that this tight interest rate framework will tempt some market players into arbitrage mood and with the objective of abusing the targeted concessional special facilities through money market investments,” Gono said.
He said the market is forewarned that rigorous follow-ups will be effected on all cases where producers benefit from special facilities.
The tight interest rate policy is expected to constrict inflationary demand for credit.
Gono is further tightening the monetary policy to arrest inflation, which is trekking north again.
Inflation had progressively declined from a record figure of 623% in January last year to 124% in March this year.
The trend started to reverse in April 2005, when the annual rate increased by 5% to 129%.
The upward trend continued with the rate increasing to 144% and 164% in May and June respectively.
However, Gono is optimistic that his inflation target of not more than 80% is still attainable.
“The unfavourable trend is expected to reverse during the last quarter of the year, with annual inflation still targeted to recede to around 80%,” he said.
He admitted that the recent upturn in monthly inflation is not sustainable and is at a variance with the vision of macroeconomic stability.
Gono said the increasing trend in inflation is due to the fuel price increases, drought, cost-push effects of wage and salaries increases and unacceptably high levels of monetary expansion.