THE Reserve Bank of Zimbabwe’s (RBZ) monetary policy committee (MPC) raised its policy rate from 40% to 60% on October 28, in an attempt to gain control over soaring inflation and stabilise the exchange rate.
“The measure is expected to result in positive real interest rates, which is critical to foster savings in the economy,” governor John Mangudya said in a statement.
The central bank last raised interest rates from 35% to 40% in February to try and control inflation, which has since risen.
Zimbabwe’ annual inflation rose to 54.5% in October, driven mainly by a resurgence in the volatility of the parallel market exchange rate.
The Zimbabwe dollar officially trades at 90 to the greenback, but is as low as 180:US$1 on the widely used parallel market.
These developments prompted the central bank to cut money supply through a raft of monetary measures, including a significant upward adjustment of the bank rate, increasing statutory reserve requirements, and tightening reserve money by reducing its quarterly growth target.
After its sitting earlier in the week, the RBZs Monetary Policy Committee also increased its Medium Term Bank Accommodation Facility interest rate from 30% to 40% with immediate effect.
“The measure is expected to result in positive real interest rates which is critical to foster savings in the economy,” RBZ governor John Mangudya in the MPC statement.
The central bank increased statutory reserve requirements for demand/call deposits from 5% to 10%, while maintaining the rate at 2.5% for savings and time deposits.
It also increased deposit rates for Zimbabwe dollar savings and time deposits from 5% and 10% per annum to 7.5% and 20%, respectively, “with a view to promoting the appeal of the (Zimbabwe dollar) as an investment currency”.
The RBZ further tightened reserve money by reducing the quarterly growth in reserve money targets from 20% to 10% for the fourth quarter of 2021 and the first two quarters of 2022.
“The decision to review the reserve money growth targets was informed by the reserve money growth outturn of 9.3% for the quarter ending 30 September 2021,” reads part of the MPC statement.