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Zimbabwe: RBZ to Lower Borrowing Costs

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Senior Business Reporter

Monetary authorities agree that there is need to lower the cost of borrowing in Zimbabwe in order to support high production in the economy, but are still studying key fundamentals to see if that will not upset current stability.

Reserve Bank of Zimbabwe RBZ Governor Dr John Mangudya, said recently that the bank’s monetary policy committee (MPC), was still looking at the key economic fundamentals and will look at possible interest rate review downwards in the new year. The Reserve Bank of Zimbabwe raised its policy rate to 35 percent from 15 percent in a bid to curb speculative borrowing amid surging inflation.

A month earlier, in May this year, Zimbabwe had recorded an annual inflation rate of 785,55. The month-on-month inflation rate came in at 15,13 percent. Generally, a bank policy rate is the rate used by central banks to implement or signal its monetary policy stance or preferred interest rate level, which guides the market. It is most commonly set by the central banks’ policy-making committees.

Zimbabwe’s policy rate was halved from 70 percent to 35 percent in November last year, and was cut in two further steps this year to 15 percent, partly to reduce the costs of those needing to borrow to cope with economic challenges arising from travel restrictions and the lockdown imposed to limit risk of infection of Covid-19.

However, with inflation rates still high, and with special schemes announced at lower interest rates for those most affected by lockdown provisions, the RBZ’s Monetary Policy Committee, has restored the 35 percent pertaining at the beginning of the year. The black market in foreign currency was being furled by speculative behaviour, including influxes of borrowed funds.