By Nelson Banya
Zimbabwe’s freeze on bank lending is a temporary measure which is meant to contain inflation and stabilise its economy, central bank governor John Mangudya told state television on Tuesday.
President Emmerson Mnangagwa on Saturday ordered the suspension with immediate effect, saying the move was meant to stop speculation against the Zimbabwean dollar, which has been rapidly devalued on a thriving black market.
“We know this is a painful, but necessary, measure. It was necessary because of the increase in inflation. Some entities were now using funds from banks to purchase foreign currency,” Mangudya told the ZBC.
“It’s a temporary, necessary measure to ensure that there is sanity in terms of taming inflation.”
Zimbabwe’s inflation has started to rise again, with year-on-year inflation at 96 percent in April, up from 61 percent at the beginning of the year, mainly due to a rapidly weakening local currency.
“Surely, this is not an ideal measure to control the growth in broad money supply,” the Zimbabwe National Chamber of Commerce (ZNCC) said in a statement.
“This legitimises a parallel banking system with usurious interest rates and no investor would be attracted to such an economy where lending can be suspended overnight.”
Economic research firm Morgan & Co said the lending freeze would hurt Zimbabwe’s already fragile economy.
“Businesses rely on borrowing for short-term financing and operational needs,” it said in a note. “Lending is required to import raw materials, pay salaries, working capital requirements and machinery. This measure will negatively impact on productivity and capacity utilisation.”
On Monday, the official rate moved to 275.79 Zimbabwe dollars, according to the central bank website, after the government decided to use interbank market rates instead of a rate determined during the central bank’s weekly auctions.