The central bank expects the economy to grow by 2% this year, slower than the government’s previous forecast of 3.5%, but it is holding interest rates at 20% despite a lower inflation outlook and market calls for a rate cut.
RBZ governor John Mushayavanhu said Thursday that the economy remains “resilient”, despite the impact of the worst drought in years.
“Despite the effects of the El Nino-induced drought, the economy has remained resilient and is expected to grow at around 2% in 2024,” Mushayavanhu says in a statement after the latest meeting of the monetary policy committee.
The government has forecast the economy to grow by 3.5% in 2024, although Finance Minister Mthuli Ncube has said this may be lowered as the drought’s impact has been worse than expected. In April, the African Development Bank said it expected the Zimbabwe economy to grow by only 2% in 2024, 1.6 percentage points lower than its previous forecast, due to a combination of drought, weak commodity prices and debt.
Mushayavanhu cut the interest rate from 130% in April to 20% after introducing the new currency, the ZiG. Businesses say the interest rates remain too high, making it hard for them to borrow, and also boosting usage of the US dollar in the economy against the local currency. But Mushayavanu insists RBZ needs to “maintain the current tight monetary policy stance to ensure the sustenance of the current stability”. The main bank policy rate will be kept at 20% per annum and “an interest rate corridor of 11% to 25%”.
He adds: “The stabilisation measures implemented by the Bank since the beginning of April 2024 have resulted in a month-on-month ZiG inflation rate of minus 2.4% in May 2024. The inflation rate is expected to be around 0% in June 2024 due to declines in both food and non-food inflation. Inflation pressures will remain subdued in the outlook period with projected inflation to end the year below 5% as the exchange rate remains stable.”
Mushayavanhu says the RBZ will maintain money supply growth – the rate at which it releases ZiG into the market – will be maintained at 5%. “This will ensure that growth in reserve money is consistent with improved economic activity and increased reserves backing the domestic currency.”
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