After months of high rates to shield ZiG, Zimbabwe starts monetary easing

Zimbabwe has begun easing its tight monetary stance after months of maintaining some of the region’s highest interest rates to defend the ZiG, as the Reserve Bank of Zimbabwe (RBZ) reduced its benchmark policy rate from 35 percent to 30 percent amid slowing inflation and improved exchange-rate stability.

The rate cut marks a significant shift from the central bank’s previous stability-first approach, under which high borrowing costs were used to absorb excess liquidity, curb speculative demand for foreign currency and restore confidence in the country’s newest currency.

However, authorities insist the move does not represent a broader relaxation of monetary policy, arguing that rates are merely being adjusted to reflect the lower inflation environment while risks to stability remain.

The decision, announced following the Monetary Policy Committee (MPC) meeting held on June 15, comes as authorities point to a significant decline in inflation, stronger foreign currency inflows and improved stability in the ZiG exchange rate.

The central bank said annual inflation has fallen from a peak of 95.8 percent in July 2025 to below 5 percent since January 2026, reaching 4.4 percent in May 2026.

Foreign currency reserves backing the ZiG have also increased to over US$1.5 billion, while foreign currency inflows reached US$8.3 billion by May, compared with US$6 billion during the same period last year.

The MPC argued that the reduction in the policy rate reflects a “realignment” with the new inflation environment rather than a broad shift towards easy monetary conditions.

“The decision to reduce the Bank Policy Rate does not entail easing monetary policy at this stage, but a realignment of the policy rate to the structural shift in inflation dynamics,” the committee said.

The rate cut marks a shift from the central bank’s February position, when it maintained the benchmark rate at 35 percent and abandoned the fixed 2030 deadline for ending the multi-currency system, arguing that a transition to a mono-currency economy would depend on stronger economic fundamentals, including higher foreign reserves, sustained low inflation and confidence in the ZiG.

At the time, economists viewed the 35 percent rate as a defensive tool designed to absorb excess liquidity and limit speculative pressure on the local currency.

Economist Tinotenda Bunhu said the high rate reflected a deliberate effort by authorities to prioritise currency and price stability.

“In my view, the RBZ’s decision to maintain the benchmark policy rate at 35 percent showed that the central bank remained in a defensive, stability-first posture. The primary objective was clear: protect the currency and prevent a relapse into high inflation,” Bunhu said.

However, he warned that prolonged tight monetary conditions carried economic costs.

“Only projects with exceptionally high returns can justify borrowing at such elevated costs,” he said, noting that expensive credit could delay business expansion, particularly among small and medium enterprises.

African Vendor Network founder and economist Tinashe Nyangaire also argued that while high interest rates could assist in stabilising inflation and reducing speculative borrowing, they risked constraining productive activity if maintained for too long.

“Persistent high borrowing costs may dampen private sector investment and reinforce self-financing models, particularly among small and medium enterprises,” Nyangaire said.

He added that there was a risk of greater financial exclusion as businesses and informal traders bypass formal banking channels due to the high cost of credit.

The reduction to 30 percent may offer some relief to borrowers, although lending costs are expected to remain elevated. The RBZ also reduced the interest rate on its Targeted Finance Facility from 20 percent to 15 percent, with banks’ lending to productive sectors capped at an all-inclusive rate of 25 percent.

Meanwhile, statutory reserve requirements were left unchanged at 30 percent for demand deposits and 15 percent for savings and time deposits in both local and foreign currencies, indicating that the central bank remains cautious about releasing additional liquidity into the economy.

Zimbabwe’s economy is projected to grow by 5 percent in 2026, down from a revised estimate of 8.2 percent in 2025, with the RBZ maintaining that future policy decisions will depend on inflation trends, exchange-rate stability and broader macroeconomic developments.