The Reserve Bank of Zimbabwe (RBZ) has reviewed upwards the main policy rate to 150 percent from 140 percent as part of measures to stabilize the foreign exchange market as inflation soars.
This is the third time this year that the Central Bank has adjusted interest rates to manage stability in the economy after a 50 percentage point cut from 200 percent in February that was followed by another cut to 140 percent in March after a somewhat cool down in inflation.
The past few weeks have seen a significant spike in Zimbabwe dollar inflation owing to increased money supply in the economy which has left the local unit of transaction massively devalued.
The Zimbabwe dollar has lost 91 percent of its value on a yearly basis and 81 percent since beginning of the year.
In its Monetary Policy Committee meeting that took place yesterday, the RBZ resolved to address demand side factors weighing down on the exchange market by also increasing the Medium-term Bank Accommodation (MBA) interest rate from 70 percent to 75 percent per annum and increasing the Statutory Reserve Requirements on local currency demand and call deposits from 10 percent to 15 percent while maintaining savings and time deposits requirements at 5 percent.
“The Bank remains omitted to continuing with the current tight monetary policy to restore and sustain the exchange rate and inflation stability,” said the RBZ.
The Central Bank expects the gold backed digital tokens to augments physical gold coins as a value preservation instruments that will continue to mop up excess liquidity form the market.
To date the RBZ has sold to the market ZW$ 31.8 billion and ZW$ 35.2 billion worth of gold coins and gold-backed digital tokens, respectively.
Some of the measures to be implemented by the RBZ include selling foreign currency at the market-determined exchange rate through banks to support and strengthen the foreign exchange interbank market, and banks shall in turn sell the foreign currency to their customers.
“This measure is calculated to ensure that the interbank foreign currency market is the primary source for foreign exchange needs in the economy and that the foreign exchange auction system shall continue to operate for meeting smaller requirements for foreign payments and for continuous price discovery,”
“Thus, in order to ensure that the interbank forex market is self-financing the 90-day liquidation requirement on export proceeds will fall away. The current interbank maximum trading limits shall be reviewed upwards from US$100 000 to US$500 000.”