Despite pressure from strained businesses, Mthuli says interest rates must stay at 200% into 2023

Zimbabwe currency
(REUTERS/Philimon Bulawayo)

Finance Minister Mthuli Ncube says interest rates must remain above 200% into 2023 to contain inflation, resisting pressure from businesses who say the high borrowing rates are stifling recovery.

The Reserve Bank of Zimbabwe raised interest rates from 80% to 200% in June as inflation soared. Large businesses have called for a cut on rates, but Ncube says these will remain until inflation slows down.

“I think once we see that downtrend in month-on-month inflation being sustainable, maybe over a three- to four-month period, then we can begin to think about lowering interest rates. But for now, the tough monetary-regime stance and the tough fiscal stance also stands,” Ncube told reporters via a virtual IMF press conference from Washington.

“That’s what it takes to bring stability and bring things under control.”

Annual inflation slowed marginally to 280.4% in September from 285% in August. September month-on-month inflation was 3.5%, down from August’s 12.4%. The government wants to bring monthly inflation down to 3% by the end of the year, Ncube says.

The tight monetary policy has received a nod from the IMF, which said recently that these are “policies in the right direction and have contributed to the narrowing of the parallel market exchange rate gap.”

But the measures have been widely criticised by businesses. Dairibord, OK Zimbabwe and Simbisa are among the leading companies that have called for rate cuts.

Says Simbisa in its latest financials: “The Group commends efforts by the Reserve Bank to stabilise the country’s local currency in the period after the Group’s reporting date. However, the Group urges the Reserve Bank of Zimbabwe to review minimum productive sector lending rates which are currently set at 200% as this may stifle growth in the medium term.”

Stockbrokers IH Securities have cautioned that the high rates may increase the risk of non-performing loans and add new pressure on banks this year.