According to Zimbabwe government statistics, annual inflation has risen to 191.6% in June 2022.
In order to tame inflation, the Reserve Bank of Zimbabwe. RBZ ( Central Bank of Zimbabwe) has more than doubled its benchmark lending rate to 200%.
Zimbabwe’s interest rates are already some of the highest in the world.
The rate hike was intended to achieve a positive real interest rate to discourage speculative borrowing that undermines the local currency.
Banks are now bracing for steeper times as the President of Zimbabwe is expected to announce more measures to control inflation and rising cost of basic goods over the coming weeks.
“At a time when banks were still adjusting their interest rates, they will be confronted with steep rates.
We have decided to bite the bullet. Stability will be achieved through an aggressive monetary policy interest rate hike.”
– Reserve Bank of Zimbabwe
In June 2022, RBZ instructed banks not to issue any loans at below the official rate, currently at 80%, with effect from July 2022 when it will be at 200%.
At the same time, Zimbabwe will maintain a multi-currency system for the next 5 years, including the U.S. dollar, thus making the dollar a legal tender in order to boost market confidence.
Since the start of the Russia-Ukraine conflict, Zimbabwe’s inflation rate shot up from 66% to more than 131.7% in May 2022. In two months, it increased again to almost 200%.
The Government has said that it would not hesitate to intervene to cushion against price increases and exchange rate volatility. RBZ seeks to achieve stability through ‘an aggressive monetary policy interest rate hike,’ with the key agriculture sector being eligible for a concessionary interest rate to protect the industry.
