HomeLocal NewsRBZ holds policy rate at 40%

RBZ holds policy rate at 40%


THE Reserve Bank of Zimbabwe (RBZ) says the recently appointed monetary policy committee (MPC) agreed to maintain the bank’s policy rate at 40%, as it fights to avoid a recession through a rate hike that has been demanded by several analysts.

The policy rate was recently increased to 40% from 35% in October 2020.

When interest rates increase quickly, this can trigger a chain reaction that affects the economy, which can potentially slip into a recession under tepid demand.

Experts said on Wednesday, if this happens, the government may be forced to cut rates, although it could take longer for the economy to recover.

The RBZ has been careful to increase rates and amplify already subdued demand, stimulate demand and ignite an inflationary spiral.

At 240% this month, the country already has Africa’s highest inflation rate, which central bank governor John Mangudya has been careful not to tamper with under a tight disinflationary strategy.

On Tuesday, the central bank said it had also kept the medium-term lending rate to productive sectors at 30% and released an additional ZW$2,5 billion (about US$29,6 million) to fund winter wheat farming.

“The committee noted the major milestones made by the bank, especially the implementation of a monetary targeting framework, which has been successful in containing reserve money growth, and the introduction of the foreign exchange auction system, which has resulted in the current stability of the exchange rate,” Mangudya said.

“The MPC made the following resolutions to buttress measures announced in the February 2021 monetary policy statement and to sustain the current macroeconomic stability; maintaining the current conservative monetary targeting framework, anchored on 22,5% reserve money quarterly targets.

“Keeping the bank policy rate and the Medium-term Bank Accommodation (MBA) Facility rate at 40% and 30%, respectively, increasing the amount of the MBA facility by an additional ZW$2,5 billion to cater for the winter wheat planting programme, putting a cap on the interest rate at which banks can on-lend the proceeds from the MBA facility at 10% above the borrowing rate to ensure recovery of the productive sectors,” he said.

Mangudya said recently announced policies had anchored inflation expectations, contributing to ongoing reductions in inflation, which declined from 837,5% in July 2020 to 240% this month.

Similarly, monthly inflation fell from a peak of 35,53% in July 2020 to 2,26% in March 2021.

“The MPC encouraged bureaux de change to support micro, small-and-medium-sized enterprises, which require foreign currency for their various productive requirements at levels below the minimum qualifying threshold of the SME foreign exchange auction system,” RBZ governor said.

This week’s announcement codifies the RBZ boss and his colleagues’ strategy to be extraordinarily patient as they battle to protect the economy in the months ahead, even as impatience is running high among Zimbabweans following the dramatic return of volatilities in 2019.

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