According to CCTV Zhengdian Finance, the Reserve Bank of Zimbabwe (Central Bank) announced that it would raise the country’s benchmark interest rate to a record high of 200%. At the same time, the Zimbabwean government officially reintroduced the US dollar as legal tender to curb triple-digit inflation and stabilize the exchange rate.
Zimbabwe raises benchmark interest rate to 200%
The Reserve Bank of Zimbabwe issued a statement saying that the Monetary Policy Committee decided to increase the policy interest rate from 80% to 200%, with the rate of increase reaching 12,000 basis points. The bank’s cumulative interest rate hikes this year reached 14,000 basis points, the highest in the world.
In addition, it is reported that the Zimbabwe Monetary Policy Committee also announced that it will issue gold coins and introduce them into the market as a store of value. Reserve Bank of Zimbabwe Governor John Mangudya said the Monetary Policy Committee is highly concerned about the recent rise in inflation in Zimbabwe.
The key interest rate here refers to Zimbabwe’s base interest rate, which is the bank lending rate. The Zimbabwe Monetary Policy Committee also announced on the same day that the country’s deposit interest rate will be raised from 12.5% to 40%.
A statement from the Central Bank of Zimbabwe said, “Rising inflation is eroding consumer demand and confidence and, if not controlled, it will reverse the significant economic gains made over the past two years. The committee decided to take measures to align interest rates with inflation progress and to Strengthen foreign exchange circulation based on the introduction of gold coins.”
It is worth mentioning that Zimbabwe is also preparing to use the US dollar as its national legal tender for the second time since 2009. However, this has not changed the dollar shortage and hyperinflation that Zimbabwe has been trapped in since this century.
Since 2000, Zimbabwe has been suffering from sanctions from Western countries led by the United States and the European Union, causing its economy to shrink significantly and inflation to surge.
As the former chief economist of the World Bank said, the restrictions frequently imposed on the US dollar and the monetary measures of the Federal Reserve are the root causes of global financial risks. Analysts believe that Zimbabwe’s monetary strategy may further exacerbate the country’s inflationary woes.
Zimbabwe’s annual inflation rises to 191%
As of June, Zimbabwe’s annual inflation rate rose to 191%, according to the Zimbabwe Statistics Authority.
Domestic prices of cooking oil and bread have soared in Zimbabwe. In May this year, inflation reached triple digits for the first time since June last year, with annual inflation exceeding 130%. The Zimbabwean government is trying to regulate prices by suspending import taxes on basic commodities such as cooking oil, rice and flour.
In May this year, Zimbabwe’s Finance Minister Ncube said that the country’s market prices have increased recently, and the Zimbabwean government is making unremitting efforts to ensure that the economy returns to stability.
It is reported that the Zimbabwean dollar has depreciated by more than two-thirds against the US dollar this year.
Ncube said in a statement submitted to parliament that the Zimbabwean government, together with the central bank, has taken a number of measures to stabilize the currency and reduce inflation, including fiscal consolidation and limiting the growth of reserve currency.
And has made clear its intention to maintain a multi-currency system based on the use of the US dollar and the Zimbabwean dollar, deciding to enshrine the multi-currency system and the continued use of the US dollar into law for a period of five years. ”
He said the International Monetary Fund had lowered Zimbabwe’s economic growth forecast for this year to 3.6% from 4.4% at the beginning of 2022 due to disruptions in global supply chains.
Ncube said that rising energy and wheat prices in the international market have caused imported inflationary pressure on Zimbabwe’s domestic economy. High fertilizer prices have also pushed up agricultural production costs, and ultimately pushed up food prices.
As for the continued increase in inflation, Ncube said that in addition to the situation between Russia and Ukraine, the country’s inflationary pressure is mainly driven by the depreciation of the Zimbabwean dollar exchange rate and rising international prices.
Ncube said he hoped the Russia-Ukraine conflict would end soon so prices in Zimbabwe’s domestic market could normalize. He also said that the Zimbabwean government is paying attention to developments and if the situation worsens, the government will look for other ways to slow down price increases and exchange rate depreciation.
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