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RBZ Cuts Interest Rates As Inflation Cools

The Reserve Bank of Zimbabwe (RBZ) has cut its policy rate by 10 percentage points to 140 percent –a month after another cut to 150 percent driven by a downward inflation trend.

Month-on-month inflation declined from 0.7 percent in January this year to -1.6% in February 2023 and 0.1% in March 2023.

Annual inflation also declined from 101.5 percent in January 2023 to 92.3% in February 2023 and further down to 87.6% in March 2023 and was expected to continue on the disinflation path owing to the tight monetary policy stance and anticipated bumper harvest which was expected to dampen food prices, the RBZ Monetary Policy Committee has said.

This comes on the back of businesses complaining about the high cost of capital.

Analysts however remain less amused stating that the new interest rates regime is still unsustainable to business.

In February Zimbabwe adopted a blended inflation calculation which averages prices movements in both the Zimbabwe dollar and the American dollar.

“Domestic inflationary pressures in the economy continued dissipating as a result of fiscal discipline, the tight monetary policy, and enhanced monitoring and enforcement of market discipline by the Financial Intelligence Unit (FIU),” said the MPC.

The MPC also noted that the 70:30 currency mix of foreign and local currency, respectively, in the economy was a reflection of the significant foreign currency inflows into the economy during the year 2022, which trend was expected to continue in 2023.

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In the three months to March, the country received US$1.78 billion in foreign currency, representing an increase of 31.5 percent compared to US$1.36 billion in the same period in 2022.

This was against payments of US$1.69 billion over the same period in 2023.

The local currency also continued to be widely used in the economy as shown by the Real Time Gross Settlement (RTGS) transactions of ZW$10.6 trillion in the five months from October 2022 to February 2023, compared to US$7.5 billion worth of transactions settled during the same period.

Measures to mop up excess liquidity on the market such as the introduction of gold coins have also been attributed to the deceleration of inflation.

“The favorable uptake of gold coins has aided the dissipation of domestic inflationary pressures,” said the MPC.

As of 10 March, a total of 31,866 gold coins in various denominations have been sold, absorbing more than ZW$25.8 billion from the market.

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