By The Reserve Bank of Zimbabwe’s Monetary Policy Committee (MPC) convened on September 27, 2024, to deliberate on the current macroeconomic landscape, announcing significant policy changes aimed at stabilizing the economy in the face of mounting inflationary pressures and exchange rate volatility.
The MPC acknowledged that the economy enjoyed a period of relative stability from April to mid-August 2024, during which month-on-month inflation averaged -0.82% over three months, from May to July 2024. However, the second half of August saw an escalation in exchange rate pressures, evidenced by a widening parallel market exchange rate premium and heightened inflation. As a result, inflation increased to 1.4% in August and is projected to rise further in September.
Despite a rise in foreign currency inflows totaling US$8.465 million during the first eight months of 2024, reflecting a 13.4% increase from the previous year’s inflows of US$7.468 million, the volatility of the parallel market exchange rate continues to pose significant challenges.
In response, the MPC has introduced several measures to combat these pressures and anchor inflation expectations. The Bank Policy Rate has been raised from 20% to 35%, effective immediately. Statutory reserve requirements for demand and call deposits, both local and foreign, have been increased to 30%, up from the previous 15% and 20%, respectively. Reserve requirements for savings and time deposits have also been raised from 5% to 15%, effective immediately. The MPC has also allowed for greater exchange rate flexibility in response to the growing demand for foreign currency. To curb the outflow of foreign exchange, the maximum amount an individual can take out of the country has been reduced from US$10,000 to US$2,000.
The MPC is confident that these aggressive measures will help manage emerging exchange rate risks and stabilize inflation expectations in the near to short term. Moving forward, the MPC remains vigilant to address any potential risks that could threaten macroeconomic stability.
The new policy measures are reflected in the latest exchange rates, which show the ZWG trading at 23.7804 (bid) and 25.0000 (ask) against the USD, with an average rate of 24.3902. Additionally, the GBP/ZWG rate stands at 31.7943 (bid) and 33.4275 (ask), while the EUR/ZWG exchange rate is at 26.4842 (bid) and 27.8475 (ask).
These bold steps by the RBZ highlight the central bank’s determination to address the growing economic challenges, but only time will tell if these actions are sufficient to bring stability to Zimbabwe’s fragile economy.
Dr. John Mushayavanhu, the Governor of the Reserve Bank, signed off on the press statement, affirming the MPC’s commitment to macroeconomic stability amidst rising pressures.
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