Zimbabwe defends high interest rates

Published: 2 hours ago

The government has defended Zimbabwe's high interbank policy rate, arguing that strict monetary measures introduced in 2024 were essential to stabilise the economy and bring inflation under control, despite growing concerns about the impact on businesses and economic activity.

Finance, Economic Development and Investment Promotion Minister Mthuli Ncube told the National Assembly that the Reserve Bank of Zimbabwe's decision to tighten monetary policy in September 2024 was part of a broader effort to curb inflation, stabilise the exchange rate and restore macroeconomic confidence.

He was responding to questions from Mbizo legislator Corban Madzivanyika, who had sought clarification on how the policy rate aligns with efforts to maintain low inflation.

Ncube said the increase in the bank policy rate to 35 percent, along with higher reserve requirements, was necessary to reduce excess liquidity and limit speculative pressure on the currency.

He said the measures had contributed to stabilising the exchange rate from October 2024 and helped reduce inflation to single-digit levels, which currently stands at 4,1 percent.

Zimbabwe has faced prolonged economic instability marked by currency volatility, high inflation and declining public confidence in monetary policy. The introduction of the Zimbabwe Gold (ZiG) currency in April 2024 formed part of government efforts to restore stability after the collapse of the Zimbabwe dollar.

However, the tight monetary environment has drawn criticism from economists and business leaders, who argue that high interest rates are constraining access to credit, particularly for manufacturers and small enterprises already under pressure from rising costs.

Ncube acknowledged that borrowing costs remain high relative to inflation, but said the authorities were taking a cautious approach to avoid reversing recent gains.

He said premature easing of monetary policy could trigger a resurgence of inflation, adding that the Monetary Policy Committee would only begin gradually lowering rates if stability is sustained.

Ncube maintained that maintaining macroeconomic stability was critical for long-term recovery, even if the measures are difficult in the short term, saying economic growth cannot be achieved without price stability.
- newsday

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