HomeBusiness DigestInterest rates hiked to 'counter inflation'

Interest rates hiked to ‘counter inflation’

Eric Chiriga

RESERVE Bank of Zimbabwe (RBZ) governor Gideon Gono has again increased interest rates, a decision which he said will counter resurgent inflation.

rial, Helvetica, sans-serif”>Interest rates have been revised to 415% for secured loans and 430% for unsecured with effect from October 12.

Financial analysts have blamed the surge in the rates for further straining companies’ operations as they increase the cost of borrowing.

“This is in order to provide a robust nominal anchor for inflation control and counter the high inflation expectations that have resurfaced over recent months,” Gono said.

After falling from a record level of 623% in January 2004 to 124% in March this year, in the months of April to June levels of 129%, 144% and 164% were recorded.

Last month inflation reached 359,8%.

Gono said the new interest rate levels were largely pre-emptive and seek to dampen inflation expectations. He said money market players should not seek to directly link investment rates on treasury bills and other instruments to these accommodation rates.

“Accommodation rates will serve as policy rates whose main focus is on inflation expectations,” he said.

The accommodation rate is the rate at which the RBZ lends to financial institutions and this benchmarks their rates.

Recently Gono hiked interest rates to 415% for unsecured lending and 410% for secured lending. This was again in response to a surge in the year on year inflation rate for September that had risen by 94,7 percentage points on the August figure to 265%.

Gono said under the tight monetary management framework, the central bank would maintain a short money market position consistent with efforts to fight inflation.

He said since the beginning of the year money supply growth had been on an upward trend.

Money supply has remained between 178% and 260% from January to August.

“Accounting for the 249% annual growth in money supply (M3) in August was credit to government that grew by 1 037,7%, claims to public enterprises of 660,6% and credit to the private sector at 99,9%.

Annual growth in credit to the private sector was 302,5% in August 2004, before declining to 134,4% and 60% in December and June 2005 respectively.

However, lending to the private sector has steadily increased to 100% at end of August, the central bank governor said.

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