• RBZ reduced interest rates from a higher of 200% to 150%
  • However, Zimbabwe still boasts  the most usurious repo rates
  • These, however, are likely to boost ZWL loans due and credit sales as they are still unbearable

Harare- Zimbabwe’s interest rates have been slashed to 150% from a global record of 200% according to the latest Monetary Policy Statement released by the Central Bank. This translates to a 50 percentage points cut. However, the Thursday directive still did not alleviate RBZ from having the most usurious borrowing costs in the world.

Central Bank’s directive came after the business community decried the high borrowing rates amid the downward movement of inflation trends.

A tighter monetary policy stance is being employed to save the dire currency and economy from total collapse. Through high interest rates, speculative borrowing from the private sector is curtailed thus, arbitrage opportunities on the parallel market weakened.

However, high borrowing costs are a double-edged sword as they curtail productive borrowing. Due to high borrowing costs and rapid currency depreciation, companies like Truworths suspended credit sales in Zimbabwe dollars while Ariston Holdings, Delta Corporation and Econet Wireless incurred high-interest costs resulting in losses and reduced profitability.

Commenting on the repo rates slash, RBZ governor John Mangudya said, “In essence, the current high-interest rates may present a risk of discouraging private sector borrowing in local currency and contracting economic growth in the medium to long term, especially in the wake of the anticipated slowdown in global economic activity.”

The slash, however, is unlikely to have any significant impact on promoting productive borrowing and weaponising consumer purchasing behaviours as 150% is still unbearable. On the other hand, with more than 70% of local transactions being made in US dollars, and the abuse of the ZWL on the parallel market due to its bubble-gum effect in preserving value, keeping repo rates high is a wise move to curtail further inflationary pressures.

In the outlook, companies are likely to keep on bemoaning high-interest rates and boycotting Zimbabwe dollar loans, thus, curtailing consumer purchasing power and reduced profitability especially from credit sales.

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