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Zimbabwe’s Central Bank Retains Africa’s Highest Interest Rate at 35%

By Ray Ndlovu
John Mushayavanhu, governor of Zimbabwe's central bank, announces a new currency unit called ZiG during a news conference in Harare, Zimbabwe, on Friday, April 5, 2024. Zimbabwe, in its latest bid to end the serial collapse of the local dollar, has replaced it with a new unit called ZiG, which will be backed by a basket of foreign currencies, gold and other precious metals. Photographer: Cynthia R Matonhodze/Bloomberg (Cynthia R Matonhodze/Bloomberg)

(Bloomberg) -- Zimbabwe’s central bank retained Africa’s highest interest rate and affirmed its tight monetary policy stance will continue into 2025. 

The monetary policy committee kept borrowing costs at 35% at its final meeting of the year, Governor John Mushayavanhu said in an emailed statement on Wednesday.

“To ensure that inflation expectations remain well anchored, the MPC resolved to maintain the current tight monetary policy stance,” he said.

The Reserve Bank of Zimbabwe’s hawkish stance has supported the nation’s bullion-backed currency and helped it recover some lost ground against the dollar. The ZiG — short for Zimbabwe Gold — strengthened 12.7% against the US currency in November, its best month since a shock devaluation on Sept. 27 wiped out 43% of its value.

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The devaluation led to a slump in government revenue, slashed workers’ earnings and sparked double-digit monthly inflation for the first time since the currency’s April debut.

It’s averaged almost 8% in the past seven months, and jumped to 37.2% in October.

“The spike in month-on-month inflation in October reflected the once-off depreciation of ZiG against the US dollar in September 2024,” said Mushayavanhu. 

The ZiG, launched in April, is the nation’s sixth attempt at a functional local currency in the past 15 years. It’s backed by gold, other precious metals and foreign currency reserves held at the central bank.

Finance Minister Mthuli Ncube said last month that the nation’s fiscal authorities see monthly inflation averaging less than 3% next year.

Still, Oxford Economics said the forecast appears overly optimistic. 

“Zimbabwe’s limited foreign exchange reserves, lack of access to external markets, and its tendency to rely on central bank financing to fund fiscal gaps will likely continue to place pressure on inflation and the currency in the medium term,” Lyle Begbie, an economist with the London-based research firm, wrote in a recent client note.

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