• RBZ has maintained a tight monetary policy, keeping the benchmark interest rate at 35% and statutory reserve ratios high, to support the Zimbabwe Gold
• The ZiG persists in its slow decline, losing 0.8% against the US dollar on the formal market in March, with a 26% premium on the parallel market
• Despite the RBZ's efforts to stabilize the ZiG, it risks long-term stability without demand-side action

Harare- The Zimbabwe Gold (ZiG) persists in its slow decline, with March’s gradual erosion spilling into April 2025. The ZiG closed at 26.77 on 31^st of March 2025 from 26.72 in the previous week against the greenback on formal market.

Losing 0.8% against the US dollar on the formal market in March up from 0.7% in February but below January’s 2.2% drop, the ZiG’s steady weakening is no accident.

On the parallel market, the premium stabilised at 34%, down from January’s 40% and a peer-to-peer rate of 37%, leaving a narrowed 26.9% gap.

This relative firming owes much to the government’s delay in supplier payments since December 2024, with some receiving partial settlements since January, a move to cap liquidity that aligns with the Reserve Bank of Zimbabwe’s (RBZ) tight monetary stance.

The RBZ’s Monetary Policy Committee (MPC) has held the benchmark interest rate at 35% set after the ZiG’s 43% devaluation on 26 September 2024 from 20% alongside steep statutory reserve ratios (30% for demand/call deposits, 15% for savings/time deposits in ZiG and USD).

This restrictive policy isn’t just a response to the ZiG’s erosion, it’s the backbone supporting it. By keeping rates high and liquidity tight, the RBZ ensures the currency’s decline remains gradual, avoiding a sharper collapse reminiscent of Zimbabwe’s hyperinflation past.

The MPC’s acknowledgment of “low aggregate demand” doesn’t sway this choice; stability trumps stimulus, even as the ZiG sheds 49% of its value since its April 2024 launch.

This deliberate tightness, however, comes at a cost. High rates and reserve requirements strangle lending, pushing borrowing costs above 35% with commercial markups.

Businesses in agriculture, manufacturing, and retail key to jobs and GDP face a credit crunch, stunting growth amid power cuts, forex shortages, and volatility.

The RBZ’s focus on propping up the ZiG’s controlled erosion sacrifices economic vitality, deepening the demand slump it notes but doesn’t address.

The lagging demand for ZiG, exacerbated by continued policy missteps like the 43% overnight devaluation in September 2024, urgently requires a boost through government services and beyond such as passports and fuel to ensure long-term stability.

Currently, rentals and fuel remain payable in USD, while medical services and capital goods also lean heavily on foreign currency, reflecting a lack of confidence in the ZiG. This demand-side weakness, where few transactions incentivize ZiG use, undermines its relevance and perpetuates USD dominance.

By mandating ZiG payments for key services, RBZ could drive real demand, anchoring the currency’s purchasing power and fostering the sustained stability that tight supply-side measures alone, high rates and reserves cannot achieve.

Historically, aggressive rates like 2022’s 200% peak tamed inflation but left stagnation; today’s 35% echoes that trade-off, prioritising price control over recovery.

Yet, supporting this gradual erosion through tight policy isn’t enough, much more is needed on the demand front. The RBZ’s reliance on deferred payments and high reserves tackles supply-side pressures but ignores the crying need to spark demand through real activity.

The inflation outlook reflects this urgency. Monthly ZiG inflation eased from 10.5% in January to -0.1% in March, but the RBZ warns of a “high” annual figure in April’s debut ZimStat data, tied to the September 2024 devaluation (13.9 to 24.39 per USD, now 26.7 by March 2025).

It projects annual inflation below 30% by year-end, banking on tight policy to hold the line. But with parallel rates outpacing the official peg, this optimism falters.

The ZiG’s managed decline may avert chaos, but without demand-side action, Zimbabwe’s economy risks a slow chokehold stabilised, yet stagnant.

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