Zimbabwe has raised interest rates and devalued its gold-backed currency by 43% following an increase in demand for foreign currency.
In a statement released on September 29 2024, the Reserve Bank of Zimbabwe (RBZ) said it had raised its benchmark policy rate to 35% from 20%. Meanwhile, prices on its website indicated that ZiG, an abbreviation for Zimbabwe Gold, had increased to 24.4 per dollar, up from 14 per dollar earlier in the day.
While the central bank’s monetary policy committee did not explicitly state that it was devaluing the ZiG, Governor John Mushayavanhu indicated that the bank was implementing several measures to curb inflation, including permitting ‘greater exchange rate flexibility’ to address the rising demand for foreign currency in the country.
According to BBC, there has been an increase in demand for the U.S. dollar, which is also legal tender and large retailers warned of store closures if the ZiG rate remained fixed at the previous level.
Monthly inflation accelerated to 5.8% in September 2024, up from 1.4% in August 2024.
The ZiG, supported by Zimbabwe’s gold and foreign currency reserves, was introduced in early April 2024 to replace the Zimbabwean dollar, which had depreciated by approximately 80% since the beginning of the year. It represents Zimbabwe’s sixth attempt in 15 years to establish a stable local currency.
INTRODUCING | Zimbabwe Introduces Zim Gold, the New Currency Backed by Gold and Precious Minerals – https://t.co/ncKtxrEzpg
— Jack Straw (@JackStr42679640) April 8, 2024
The pressure on the currency began mounting in August 2024 due to rising food import costs caused by an El Niño-induced drought according to a Bloomberg report, along with declining commodity prices, which reduced dollar earnings from mineral exports.
Despite the challenges, the central bank expressed confidence that its actions would be effective. Among its other measures were:
- Increasing reserve requirements on local and foreign currency deposits to 30%, up from 15% and 20%, respectively, and
- Reducing the foreign currency withdrawal limit for individuals from $10,000 to $2,000
“The MPC is convinced that the above measures will go a long way in addressing the emerging exchange rate risks,” said Governor John Mushayavanhu.
“The MPC will remain vigilant to any emerging risks to ensure continued macroeconomic stability.”
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