Zimbabwe holds firm on elevated interest rates despite policy easing

The Reserve Bank of Zimbabwe (RBZ) has reduced its Bank policy rate from 30% to 27.5%, effective immediately, in a cautious monetary-easing move to align borrowing costs with inflation trends.

The latest cut brings the cumulative reduction to 7.5% since June 2026, although the central bank has maintained a tight monetary policy stance.

In a statement released on Monday, the Monetary Policy Committee (MPC) said the latest adjustment was intended as a “realignment of the policy rate to the observed inflation dynamics”, with annual inflation projected at 7% for the remainder of the year.

Despite the reduction, the new policy rate remains significantly above projected inflation, raising concerns over the cost of borrowing and its implications for business investment, productivity and economic growth.

The MPC also reduced the interest rate under the Targeted Finance Facility from 15% to 12.5%, while capping banks’ all-inclusive on-lending rate to productive sectors at 22.5%.

However, statutory reserve requirements remain unchanged at 30% for demand deposits and 15% for savings and time deposits, signalling continued caution over liquidity and credit expansion.

Economic analysts have argued that maintaining a policy rate nearly four times the projected inflation rate could constrain private sector borrowing, investment and business expansion.

The wide gap between interest rates and inflation highlights the central bank’s continued cautious approach, despite improvements in currency stability and foreign reserve accumulation.

Defending its monetary policy position, the MPC pointed to strong uptake of the ZiG-denominated Term Deposit Facility and the country’s improving external position.

The central bank said foreign currency reserves had surpassed US$2 billion in September 2026.

It also highlighted Zimbabwe’s full compliance with all quantitative and structural benchmarks under the International Monetary Fund’s Staff Monitored Programme.

Looking ahead, the MPC said it would continue monitoring macroeconomic risks, including global uncertainties and potential weather-related shocks during the 2026/27 agricultural season.

The committee reiterated its commitment to maintaining price stability and anchoring inflation expectations, indicating that further monetary easing would be gradual and dependent on incoming economic data.

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