Zimbabwe hikes key interest rate to 200% from 80% amid runaway inflation

Zimbabwe’s Central Bank has raised its benchmark interest rate to 200 percent as part of the series of measures announced by the government to control inflation and stabilise the exchange rate.

The monetary policy committee of the central bank hiked the previous rate of 80 percent to 200 percent,  Governor John Mangudya said in a statement on June 27, as reported by Bloomberg.

“The monetary policy committee expressed great concern on the recent rise in inflation,” Governor Mangudya said.

He further added that the monetary policy committee had noted that the increase in inflation was undermining consumer demand and confidence. If it is not controlled then it would reverse the significant economic gains that the country made in the past two years, the Bloomberg report added.

This hike has brought the cumulative increase in rates this year to a total of 14,000 basis points, which is one of the highest globally.

Surging commodity prices stemming from disrupted supply chains because of the Russia-Ukraine conflict and the lingering effects of COVID-19 lockdowns have compounded pressure on the local currency of Zimbabwe.

Annual inflation rate has been in triple digits for two straight months, rising to 191.6 percent in June from 131.7 percent in previous month, reported Livemint. The Zimbabwean dollar has dropped 69 percent to $361 per US dollar.

On June 27, Zimbabwe’s Finance Minister, Mthuli Ncube announced that the government would legalise the use of the US dollar for the next five years to help steady the Zimbabwean currency.

The slide of the currency has led to the use of US dollars to pay for everything from food, fuel and medicine to school fees.

Previous attempts to prevent the Zimbabwean 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 introduction of a new interbank rate.

Source: CNBC