Zimbabwe’s central bank will keep a tight monetary policy stance this year to support its currency that’s lost 48% of its value in the nine months since it was introduced.
High interest rates will also help the Reserve Bank of Zimbabwe contain month-on-month inflation to single-digit levels, Governor John Mushayavanhu said.
Monthly consumer-price gains have “significantly” slowed to 3.7% in December from 37.2% in October, he said.
“The forthcoming 2025 Monetary Policy Statement will further contextualise and consolidate these positive prospects, and proffer more fine-tuning policies to move the economy from stability to growth,” Mushayavanhu said.
Years of economic mismanagement have doomed five attempts to create a functioning currency in the southern African nation.
ZiG — Zimbabwe’s latest gold-backed currency — isn’t faring any better than its predecessors, with residents preferring the US dollar as a store of value.
About 90% of transactions are done using the greenback.
The central bank has increased its key interest rate to 35% to slow inflation and support the currency. Zimbabwe’s Treasury forecasts the economy to expand 6% this year driven by a recovery in the agricultural sector and growth in the iron and steel industry.
The central bank late last year announced the Targeted Finance Facility, a special-purpose vehicle meant to finance productive sectors and spur economic growth.
“It is also important to note that the TFF will be financed from the pool of banks’ statutory reserves at the Reserve Bank, implying that there is no new money created to finance it,” unlike in the past, Mushayavanhu said.
More from the governor’s comments:
The central bank is pursuing policies and strategies that aim to increase the usage of ZiG, both in physical and electronic form, as well as providing flexibility and convenience of the currency to the transacting public.
Electronic transactions processed through the Real Time Gross Settlement system are, however, dominated by the ZiG currency, which account for about 40%.
The TFF is a liquidity management tool for the Reserve Bank, as well as a catalyst for increased lending by banks to the productive sectors of the economy.
-Bloomberg
