The Reserve Bank of Zimbabwe’s monetary policy committee (MPC) has held interest rates steady as it issued a rosy outlook for inflation, saying the foreign currency auction had managed to slow down prices.

Since the foreign currency auction was launched in June, US$291 million has been allotted at the 16 auctions held so far, the MPC said in a statement released Monday after its last meeting, held on October 2.

“The MPC expects price stability to continue prevailing in the economy during the last quarter of this year mainly on account of the improved operating business environment brought about by the foreign exchange auction system,” the MPC said.

The committee says it “is pleased that the foreign exchange auction has also managed to improve the much-needed availability of foreign exchange.”

The overnight accommodation rate has been maintained at 35%. A medium-term lending rate for special lending granted to stimulate the productive sector has been held at 25%. The MPC says its decision not to increase rates, despite high inflation, is based on the tight liquidity regime followed by RBZ over the past quarter.

“This decision on interest rates takes into account of the current tight liquidity conditions in the market and the need to continue controlling speculative borrowing,” MPC says.

RBZ’s latest data on money supply showed that reserve money – the amount of currency in circulation plus deposits with central bank – fell by Z$698.26 million to Z$14.29 billion over the week ending October 2.

Inflation slowed to 761.02% year-on-year in August compared to 837.53% in the previous month. September data is expected shortly.

Productive sector funding

An additional ZW$2.5 billion has been released by the Bank to help industry, where the damaging impact of the economic crisis has been worsened by COVID-19 this year.

According to RBZ: “The funds will be accessed by final beneficiaries through normal banking channels under an arrangement that is consistent with the conservative monetary targeting framework being pursued by the Bank. Accordingly, banks are encouraged to ensure that repayments by their customers from the existing financing facilities are used to augment the Bank’s medium-term financing window.”

Mobile money restrictions, introduced recently in RBZ’s efforts to fight what it says is “speculative behaviour” undermining the Zimdollar, have been maintained. Users of mobile money can only transact up to ZW$5 000 per day. However, users can choose to make a single transaction of ZW$35 000 per week.