• The move takes the policy rate from 80% to 200%
  • RBZ Governor Dr. John Mangudya also said the bank will introduce gold coins into the market as a store of value

     

    HARARE – With soaring inflation and the threat of economic recession haunting Zimbabwe, the Reserve Bank of Zimbabwe (RBZ), announced a 120-basis-point hike to its benchmark interest rate on Monday – despite the monetary and fiscal authorities insisting that the country is not in an economic crisis.

    The move takes the policy rate from 80% to 200%, both of which are global highs. This move clearly reflects how things have turned sour for the Southern African country as the spectre of the 2008 era or hyperinflation continues to haunt the country. In its defense, the government blames the worsening economic situation on the effects of the Russia-Ukraine war.

    However, critics mention poor monetary policies as the main culprit.

    The Bank’s Monetary Policy Committee (MPC) expressed “great” concern about the recent rise in inflation, which increased to 30.7% on a month-on-month basis for June 2022 thereby increasing the year-on-year inflation for June 2022 to 191.6%.

    “The Committee noted that the increase in inflation was undermining consumer demand and confidence and that, if not controlled, it would reverse the significant economic gains achieved over the past two years,” RBZ Governor who doubles as the MPC Chairperson, DR. John Mangudya said in a statement.

    “In that regard, the MPC resolved to put in place the following measures to align the interest rates with the inflation developments, enhance the circulation of foreign exchange and introduce an investment instrument to assist holders to store value in gold coins.”

    The MPC also resolved to increase the Medium-Term Accommodation interest rate from 50% to 100% per annum; increasing the minimum deposit rate for ZW$ savings from the current 12,5% to 40% per annum and increasing the minimum rate for ZW$ time deposits from 25% to 80% per annum.

    Statutory Reserve Requirements have been maintained at 10% for demand and call deposits and 2.5% for savings and time deposits.

    Meanwhile, in order to enhance the circulation of foreign currency in the economy, as well as to support the willing-buyer willing-seller foreign exchange market, the MPC resolved to maintain the current export retention thresholds across the various sectors of the economy and that 25% of the unutilised export receipts shall be liquidated at the willing-buyer willing-seller exchange rate after 120 days from the date of receipt of the export proceeds.

    “The MPC resolved to introduce gold coins into the market as an instrument that will enable investors to store value,” Mangudya said.

    He added that “The gold coins will be minted by Fidelity Gold Refineries (Private) Limited and will be sold to the public through normal banking channels.”

    The RBZ is yet to give further information regarding the gold standard. By basic understanding, it will serve as an alternative to the US dollar as a store of value, thus cushioning holders against the exchange rate-induced inflation. However, this will further leave the local currency isolated and heading towards extinction.

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