Zimbabwe: Reserve Bank of Zimbabwe Hikes Lending Rate to 200%

In a move to combat hot red headline inflation, the Reserve Bank of Zimbabwe said on Monday that its monetary policy committee had decided to hike its policy rate to 200% from 80% per annum, with effect from July 1 amidst a move to turn the United States dollar into legal tender.

“The Committee noted that the increase in inflation was undermining consumer demand and confidence and that, if not controlled, it would reverse the significant economic gains achieved over the past two years,” the Reserve Bank of Zimbabwe said in a statement.

The MPC expressed great concern about the recent rise in inflation, which increased to 30.7% on a month-on-month basis for June and was 191.6% year-on-year.

Zimbabwe’s government will maintain the country’s multi-currency system and legislate the use of the U.S. dollar for the next five years, Mthuli Ncube, the country’s finance minister said.  READ: Guarded optimism on new Zimbabwe dollar

The U.S. dollar is already in use but will now become legal tender to boost confidence, Ncube explains at a news conference.

“The market’s lack of confidence in multi-currency is causing us problems, but I’m here to assure you it will remain in place for the next five years,” he said.

Zimbabwe abandoned its inflation-ravaged dollar in 2009, according to Reuters, opting instead to use foreign currencies, mostly the U.S. dollar. The government reintroduced the local currency in 2019, but it has rapidly lost value again.

Weakened the growth expectation, the COVID-19 pandemic and Russia’s invasion of Ukraine demonstrate that when tail risks do crystallize, they can have a large effect on struggling sovereigns like Zimbabwe. #Reserve Bank of Zimbabwe Hikes Lending Rate to 200%