Despite the Zimbabwean central bank’s efforts, the newly introduced ZiG currency continues to depreciate. Will maintaining the 35% interest rate stabilize the economy?
The Reserve Bank of Zimbabwe (RBZ) has opted to keep its Monetary Policy Rate (MPR) unchanged at 35%, even as the country’s latest currency, Zimbabwe Gold (ZiG), continues to lose value. The move is part of the central bank’s ongoing effort to curb inflation and stabilize the economy. ZiG, introduced in April 2024 as Zimbabwe’s sixth attempt at a stable currency, has struggled to gain traction.
Since its launch, the currency has shed over 43% of its value, raising concerns about its long-term viability. Despite the RBZ’s intervention in September 2024—when it devalued ZiG from 13.9 per U.S. dollar to 24.3 per dollar and hiked interest rates by 15 percentage points—the currency remains weak, with only limited adoption among citizens.
Currently, only about 30% of Zimbabweans use ZiG for transactions, while the majority prefer the U.S. dollar. On Thursday, the RBZ confirmed that ZiG was trading at 24.6 per dollar, signaling continued depreciation. “The decision to retain the benchmark interest rate is aimed at curbing market volatility,” stated RBZ Governor John Mushayavanhu.
However, the central bank’s policies have yet to tame inflation, which surged in January due to rising food and housing costs. Inflation in ZiG terms jumped from 3.7% to 10.5% month-on-month, while inflation in U.S. dollar terms climbed from 2.5% to 14.6% over the same period.
Despite these challenges, Zimbabwe’s foreign currency reserves increased to $548 million in January, providing some economic relief. However, financial analysts warn that maintaining high interest rates could discourage investment. According to Bloomberg, stock market investors and lenders have been urging the RBZ to adopt a more accommodative policy to spur economic growth.
To complement its monetary policy efforts, the central bank launched the Targeted Finance Facility late last year. This initiative is designed to channel funds into key sectors of the economy and drive sustainable development. As Zimbabwe navigates its economic hurdles, the effectiveness of the RBZ’s approach remains uncertain.
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