Zimbabwe warns it might hike interest rates if price growth accelerates

Zimbabwe’s central bank warned it may raise interest rates even further if price-growth accelerates.

“If we see inflation going up in February and in March, brace up for very high interest rates,” Reserve Bank of Zimbabwe Governor John Mangudya told business leaders today in the capital, Harare. He didn’t provide details on how much further the bank is prepared to raise rates.

Zimbabwe’s official rate is 60% — higher than the borrowing cost in any of the 57 nations and the Euro region ranked by Bloomberg. Annual inflation in the southern African nation was 60% in January, having fallen from a peak of 837% in July 2020.

“There is a trade-off between inflation and high interest rates, all central banks are tightening monetary policies so that we can get out of high inflation,” Mangudya said.

US inflation accelerated to 7.5% in January, its highest in four decades.

The Zimbabwean unit of Standard Bank Group said last week it expects the authorities won’t meet their target of reducing the inflation rate to 25% to 35% this year. Price increases are being fueled by growing use of the US dollar to pay for most transactions amid a lack of confidence in the local currency.

The nation’s currency trades informally at 230 per US dollar on the streets of Harare, almost double the official exchange rate of 120 per US dollar.-Bloomberg

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