Harare June 27 2022: Zimbabwe’s central bank raised its benchmark interest rate to a record high, one of a series of measures announced by the government to rein in inflation and stabilize the exchange rate.
The monetary policy committee hiked the rate to 200% from 80%, Governor John Mangudya said in a statement on Monday. That brings the cumulative increase this year to 14,000 basis points — the most globally.
“The monetary policy committee expressed great concern on the recent rise in inflation,” Mangudya said. “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.”
Surging commodity prices stemming from throttled supply chains because of Russia’s war with Ukraine and the lingering effects of Covid-19 lockdowns have compounded pressure on the local currency and its slide has fanned the use of US dollars to pay for everything from food, fuel and medicine to school fees.
Annual inflation has been in triple digits for two straight months, quickening to 191.6% in June from 131.7% a month prior. The Zimbabwean dollar has slipped 69% to $352.06 against the greenback this year.
Finance Minister Mthuli Ncube announced at a media briefing on Monday that the government would legalize the use of the US dollar for the next five years to help steady the Zimbabwean currency.
Read: Zimbabwe to Allow Use of US Dollar in Economy for Next 5 Years
Previous attempts to stop the currency’s collapse have included a 10-day ban on bank lending, restrictions on trades on the Zimbabwe Stock Exchange, allowing companies to pay taxes in the local unit and introducing a new interbank rate at which most commerce will take place.
Central bankers globally have been unleashing what may prove to be the most aggressive tightening of monetary policy since the 1980s to contain runaway inflation, prevent capital outflows and currency weakness as investors hunt for higher yields.
