Zimbabwe central bank sees slower economic growth of 2%

The Reserve Bank of Zimbabwe (RBZ) projects the economy to grow by 2% in 2024, which is slower than the government's earlier forecast of 3.5%. Despite the lower inflation outlook and market calls for a rate cut, the central bank is maintaining interest rates at 20%.

RBZ Governor John Mushayavanhu stated that the economy remains "resilient" despite the severe drought. He noted, "Despite the effects of the El Nino-induced drought, the economy has remained resilient and is expected to grow at around 2% in 2024."

While the government initially forecast a 3.5% growth, Finance Minister Mthuli Ncube suggested this might be revised downward due to the drought's severe impact. In April, the African Development Bank adjusted its growth forecast for Zimbabwe to 2%, down by 1.6 percentage points, attributing this to the drought, weak commodity prices, and debt.

The RBZ had previously slashed the interest rate from 130% to 20% following the introduction of the new ZiG currency. Despite business complaints that the rate is still too high and favors the use of the US dollar over the local currency, Mushayavanhu emphasized the need to maintain a tight monetary policy to sustain current stability. The bank will keep the main policy rate at 20% per annum, with an interest rate corridor of 11% to 25%.

Mushayavanhu reported that stabilisation measures since April 2024 led to a month-on-month ZiG inflation rate of -2.4% in May 2024. Inflation is expected to hover around 0% in June 2024 due to declines in both food and non-food inflation, with year-end inflation projected to remain below 5% due to a stable exchange rate.

The RBZ will also keep money supply growth at 5% to ensure reserve money growth aligns with improved economic activity and increased reserves backing the domestic currency.