By Neelam Rahim
Zimbabwe’s central bank raised interest rates to a record. The government officially reintroduced the US dollar as a legal currency to rein in inflation and stabilize the nation’s tumbling charge per unit.
The monetary policy committee over doubled the critical rate to 200% from 80%, Governor John Mangudya said during a statement on Monday. That brings the cumulative increase this year to 14,000 basis points — the foremost globally.
“The monetary policy committee expressed great concern on the recent rise in inflation,” Mangudya said.
“The committee noted that the rise in inflation was undermining consumer demand and confidence which, if not controlled, it might reverse the numerous economic gains achieved over the past two years.”
Central bankers globally are unleashing what may be the initial aggressive tightening of monetary policy since the 1980s to contain runaway inflation and prevent capital outflows and currency weakness as investors seek higher yields.
Zimbabwe’s annual inflation rate jumped to 192% in June, the very best level in over a year, as food costs tripled. A sharp depreciation has spurred the rise in prices of the Zimbabwe dollar, which has lost over two-thirds of its value against the dollar this year and is Africa’s worst-performing currency.
Finance minister Mthuli Ncube said on Monday that the government. Will legalize the US dollar’s utilization for the second time in more than a decade.
“Government has clearly stated its intention of maintaining a multicurrency system supported dual use of the US dollar and therefore the Zimbabwe dollar,” Ncube told reporters within the capital, Harare. “To eliminate speculation and arbitrage supported this issue, the govt. has decided to embed the multicurrency system and also the continued use of the US dollar into law for a period of 5 years.”
Among other steps announced by the financial organization are a rise in deposit rates to 40% from 12.5% and, therefore, the introduction of gold coins to produce an alternate store of import. The coins, to be minted by the state-owned Fidelity Gold Refineries Ltd, will be sold to the general public through banking channels, Mangudya said, without providing more details.