Zimbabwe signals gradual interest rate cuts

THE Monetary Policy Committee (MPC) is expected to begin gradually reducing interest rates in the coming months as Government seeks to stimulate economic growth while maintaining price stability and single-digit inflation, Finance, Economic Development and Investment Promotion Minister Professor Mthuli Ncube has said.

Prof Ncube revealed the planned policy shift in Parliament on Wednesday, saying Treasury anticipates a measured reduction of the interbank policy rate from the current 35 percent as inflation continues to ease.

The Reserve Bank of Zimbabwe (RBZ) raised the bank rate to 35 percent in September 2024, alongside a 30 percent reserve requirement for both local and foreign currency deposits, in a bid to curb excess liquidity and speculative activity in the economy.

The bank rate is the interest rate at which the RBZ lends money to commercial banks, and its adjustment directly influences borrowing costs across the economy.

A high bank rate makes loans more expensive for businesses and consumers, while lower rates encourage borrowing, investment and consumer spending.

The anticipated easing comes as Government's broader economic reforms and gold-backed currency strategy continue yielding positive results.

On Monday, President Emmerson Mnangagwa toured the RBZ headquarters in Harare to inspect Zimbabwe's gold reserves, which now stand at 4,48 tonnes.

The reserves make Zimbabwe the third-largest holder of gold reserves in SADC and the 11th largest in Africa.

President Mnangagwa said the country's gold and foreign currency reserves would ensure that the Zimbabwe Gold (ZiG) currency remains fully backed and resilient against global economic shocks.

The growth in reserves follows a presidential directive issued two years ago requiring the country to accumulate mineral royalties in physical form.

Combined with fiscal discipline and tight monetary policy, the reforms have contributed to macro-economic stability, exchange rate stability and declining inflation.

"We need to applaud the Government's efforts to stabilise the exchange rate and inflation we are seeing today. This did not happen overnight, but it has been a long journey, arising from reform measures implemented by the Government working closely with the Central Bank," said Prof Ncube.

He said fiscal consolidation and tight monetary policy were implemented specifically to restore macro-economic stability.

"On its part, the Reserve Bank of Zimbabwe hiked the Bank rate to 35 percent and the reserve requirements to 30 percent for both local currency and foreign currency in September 2024 to curb excess liquidity in the economy, and anchor inflation expectations, as well as to reduce speculative activities," he said.

"As a result, the exchange rate has been stable since October 2024, while inflation was on a downward trend to the current levels of single-digit of 4,1 percent in 2025."

Despite the improvements, Prof Ncube acknowledged that the current policy rate is now relatively high compared to prevailing inflation levels.

"Yes, we fully acknowledge that the policy rate is high given the current levels of inflation and we understand why that decision was taken in the first place," he said.

"Empirical evidence points to the fact that early loosening of the monetary policy could result in inflation resurgence, hence the Monetary Policy Committee is exercising caution not to loosen monetary policy prematurely."

Prof Ncube said the MPC is expected to gradually ease rates while closely monitoring economic and market developments.

"With the current low inflation, we expect the MPC to begin easing the policy rate gradually, while monitoring market developments. This measured approach is intended to support economic growth while at the same time safeguarding price stability," he said.

"Importantly, this has to be done without reigniting inflationary pressures, ensuring that inflation remains within the single-digit levels."

He added that maintaining stability remains central to Government's economic strategy.

"These are not easy decisions. They are tough, but they are necessary. Without stability, there can be no sustainable economic growth. Stability gives us the space to support recovery and move towards long-term economic growth in a disciplined and orderly manner," said Prof Ncube.

Meanwhile, Monetary Policy Committee member and economist Mr Persistence Gwanyanya, speaking in his personal capacity, also indicated that a rate review remains possible, although caution would remain critical.

"I think the MPC in its communique has been very clear about the approach to adjusting the interest rates. That the interest rates are going to be guided by the progress in inflation dynamics, but when we speak about inflation dynamics, we also speak about how the inflation expectations are anchored," said Mr Gwanyanya.

He warned that inflation trends alone cannot determine future monetary policy decisions.

"Yes, inflation has gone down, but there are also some external pressures that continue to affect the potential of causing downside risks on inflation. So, we need to be cautious about the decision on whether to soften or loosen the MPC going forward," he said.

Mr Gwanyanya cited geopolitical tensions, including the conflict involving Iran and Israel, as well as Zimbabwe's multi-currency system, as factors that require careful consideration.

"In a multiple currency regime, what you should know is that your local currency has a huge multiplication effect in terms of a small increase in the local currency money supply," he said.

"You want any extra liquidity created from the loosening to be absorbed by the demand for the local currency, which is the job of the Monetary Policy Committee."

He said the MPC would consider all economic variables before making a final decision at its June meeting.

"When the Monetary Policy Committee meets in June, they will make a decision relating to the adjustment of the policy rate, in a more considerate, well-thought-out manner," said Mr Gwanyanya.