Mangudya rules out more rate hikes, hints at future role as ‘advisor’

Under pressure: Mangudya says rate hikes have hit a ceiling (pic: Reuters)

Zimbabwe’s central bank has ruled out further interest-rate increases because they would have potentially negative repercussions, Governor John Mangudya said. 

“We’ve already hiked rates and there is a limit to hiking rates,” beyond which point they will cause non-performing bank loans to increase, he said in an interview on the sidelines of an African Export-Import Bank meeting in Accra, Ghana. “In our case we have identified that the inflation is about the supply side and demand side. We need the supply of foreign currency in the economy” to increase to stop a deterioration in the exchange rate and contain inflation, he said. 

The Reserve Bank of Zimbabwe bank on June 6 raised its key lending rate by 10 percentage points to 150% in a bid to tame inflation and protect the country’s weakening currency. It also announced that the central bank will begin selling foreign currency at market-determined exchange rates through banks, but stopped short of allowing the Zimbabwe dollar to float freely.

“Our vision is to have a mono-currency, but for now we are going in stages, we need to get economic fundamentals right to have a stable inflation and exchange rate,” Mangudya said.  The country is dealing with “structural challenges,” and people prefer to hold onto the US dollar as a store of value at the expense of the local unit, he said.

The Zimbabwe dollar slumped almost 60% against the US currency last month alone. The greenback officially trades at 6,926 to the Zimbabwe dollar but changes hands for about 8,200 on the black market.
The central bank aims to ensure inflation stabilises ahead of national elections that are scheduled for August 23.
“We are looking for equilibrium,” Mangudya said. “We want to prove that we won’t print money to finance the elections.”

The governor’s 10-year term is due to end in April next year. He plans to fill an advisory role thereafter but declined to specify what that could involve. “I will sit down and think of how to maximise the use of my energies and do new things for the welfare of Zimbabwe,” he said.