The Reserve Bank of Zimbabwe (RBZ) has made the decision to maintain its Monetary Policy Rate (MPR) at 35% amidst the ongoing depreciation of the country’s newly introduced currency, Zimbabwe Gold (ZiG). This decision is in line with the central bank’s commitment to a tighter monetary policy stance for 2025, with the aim of controlling inflation and strengthening the value of the nation’s currency.
ZiG, which is Zimbabwe’s sixth attempt at establishing a stable currency, has experienced a significant decline in value since its launch in April 2024, losing over 43% of its value. In a bid to stabilize the currency, the RBZ devalued ZiG from 13.9 per U.S. dollar to 24.3 per dollar in September 2024, while also increasing borrowing rates by 15 percentage points to 35%. However, despite these measures, the currency has continued to depreciate due to poor adoption by residents.
As of the latest data from the RBZ, ZiG was trading at 24.6 per dollar. Currently, only around 30% of the population is using ZiG for transactions, with the majority still relying on the U.S. dollar for daily transactions. RBZ Governor John Mushayavanhu emphasized that the decision to maintain the benchmark interest rate is aimed at reducing market volatility.
Despite the central bank’s efforts, inflation has surged in both local ZiG terms and U.S. dollar terms in January, driven by increasing food prices and housing costs. Inflation in ZiG terms rose from 3.7% to 10.5% month-on-month, while in dollar terms, it increased from 2.5% to 14.6% over the same period.
On a positive note, Mushayavanhu pointed out that Zimbabwe’s foreign currency reserves had increased to $548 million in January. However, according to Bloomberg, the decision to maintain high interest rates by the RBZ has faced criticism from stock investors and lenders who have called for a more accommodative stance.
To support its monetary policy efforts, the central bank introduced the Targeted Finance Facility late last year, a special-purpose vehicle designed to provide financing to productive sectors and stimulate economic growth. Overall, the RBZ’s decision to maintain the MPR at 35% reflects its commitment to stabilizing the currency and controlling inflation, despite challenges posed by the depreciation of ZiG and market volatility.
