After the country’s inflation rate rose to 191.6% in June, Zimbabwe’s monetary authorities announced that they had resolved to raise the base rate to 200% per annum. In addition, the central bank announced that it would introduce gold coins that would serve as a tool “to enable investors to accumulate value.”
Curbing Speculative Borrowing
The monetary authorities in hyperinflation-stricken Zimbabwe reportedly plan to raise the benchmark interest rate to 200% per annum, the highest in the world. The plan is expected to help put the brakes on the country’s runaway inflation, according to officials cited by Bloomberg. According to the latest data released by Zimbabwe’s statistical agency, the country’s inflation rate currently stands at 191.6%.
Persistence Gwanyanya, a member of the Reserve Bank of Zimbabwe’s (RBZ) Monetary Policy Committee, explained the rationale behind the plan, sayingby raising the base rate, the central bank would curb speculative borrowing. Gwanyanya further stated that
banks would face steep interest rates at a time when they were still adjusting rates.
Prior to this latest announcement, the RBZ had asked banks on June 17 to stop lending at rates below 80% effective July 1, 2022.
Gwanya is also quoted in the same report admitting that the central bank’s original year-end inflation target of between 25% and 35% is no longer achievable. Due to the effects of what he calls “external shocks,” the Monetary Policy Committee has now raised its inflation forecast to a figure above 100 percent.
Gold Coins as Alternative Value Storage
Meanwhile, in astatementthe RBZ resolved that its Monetary Policy Committee (MPC) will “introduce gold coins to the market as a tool to enable investors to store value.” It stated that the MPC has decided to do so. According to the statement, the gold coins will be produced by the country’s sole buyer of gold and will be “sold to the public through normal banking channels.”
In addition to recommending the minting of gold coins, the MPC has also resolved to raise the medium-term mitigation rate from 50% to 100%. Meanwhile, “the minimum deposit rate for ZW$ savings will be increased from 12.5% to 40% and the minimum interest rate for time deposits in local currency will jump from 25% to 80%.”
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