HARARE (Reuters) – Zimbabwe’s central bank said on Monday it would halve its main lending rate to 35% as it sought to boost an economy facing its worst crisis in a decade.
The decision marked a sharp change in policy after September’s rate rise. The bank’s Monetary Policy Committee said it now felt there was a positive outlook on inflation, despite a recent monthly increase.
“The committee emphasised the need for the Bank to put in place measures to fund the productive sectors of the economy by redirecting excess liquidity in the financial system,” it said.
“Notwithstanding a recent spike in monthly inflation to 38.8%, due to shocks caused mainly by adjustments of electricity and fuel prices, the inflation outlook is positive,” it added.
Month-on-month inflation soared to a four-month high of 38.75% in October from 17.7% the previous month, propelled by a surge in the prices of food and alcoholic beverages.
The government has suspended publication of annual inflation data until February, but economic analysts say the figure reached 440% last month. Many expect the government will miss its target of single-digit levels by the end of the first quarter of 2020.
The southern African nation’s economic crisis, exacerbated by a severe drought, has hit the population with rolling power cuts and shortages of foreign exchange, fuel and medicines.
In a bid to improve foreign exchange inflows, the central bank said all exporters that do not repatriate their earnings within approved timelines would be forced to sell all their proceeds at the official interbank rate.
Exporters, including mines, are allowed to keep a portion of their earnings in dollars and have up to 90 days to bring their proceeds from abroad. The central bank has, however, complained that some companies were taking too long to bring the money to Zimbabwe.
Reporting by MacDonald Dzirutwe; Editing by Catherine Evans and Andrew Heavens