03 Feb 2023
The Reserve Bank of Zimbabwe (RBZ) has slashed the benchmark interest rate on forecasts the downward inflation trend will continue.
The monetary policy committee lowered the rate from 200% to 150%, according to a statement by central bank governor John Mangudya on Thursday, the second country on the continent to reduce borrowing costs in 2023 after Angola.
“The moderation in interest rates is important and necessitated by the downward trend in the month-on-month inflation since the last quarter of 2022. The bank expects the downward trend in inflation to continue into 2023,” Mangudya stated.
Zimbabwe’s monthly inflation decelerated from 12.4% in August to 1.1% last month, and since November has remained under the 3% target. In addition, there was an annual price growth slowdown in January for the fifth consecutive month to 230%, Bloomberg reports.
A series of measures have been implemented since June, such as hiking rates to a record high and loosening controls over the forex market due to the widening gap between the official and unofficial rate, which have helped to curb soaring inflation and primarily stabilised the Zimbabwean Dollar.
The country’s currency has depreciated 15% against the U.S. Dollar in 2023, trading at Z$801 on the official market, compared to Z$1,000 on the black market.
The central bank governor added that to halt its decline, the bank will “focus on smoothening exchange-rate shocks through regular foreign currency sales to banks from the surrender portion of foreign-exchange receipts.”
Moreover, the monetary authority will permit exporters to retain 75% of their foreign-currency earnings, compared to a prior 60%, he stated.
“The increased retention will ameliorate against the increased demand for payments in U.S. Dollars by various service providers in the economy such as power utility Zesa which not only increased their tariff in October last year but now requires the bulk of payment in U.S. Dollars,” said Collins Chibafa, president of the Chamber of Mines of Zimbabwe.