RBZ hikes interest rates amid inflation surge, devalues Zimbabwe Gold (ZiG) by 44%
HARARE – The Reserve Bank of Zimbabwe (RBZ) has devalued the Zimbabwe Gold (ZiG) by 44%, allowing the currency to fall from 13.98 to 24.3 against the U.S. dollar. This significant move comes amid mounting pressure from retailers and growing economic challenges.
In a statement released today following the Monetary Policy Committee (MPC) meeting held on 27 September 2024, RBZ Governor John Mushayavanhu said the decision was necessary to address rising exchange rate volatility and inflationary pressures that have plagued the economy since August.
“The economy experienced relative stability from 5 April to mid-August 2024,” Mushayavanhu noted. “However, there has been a resurgence in exchange rate pressures, reflected by the widening parallel market exchange rate premium and rising inflationary pressures.” Monthly inflation, which had averaged -0.82% from May to July, jumped to 1.4% in August and is expected to rise further in September, the RBZ said.
Despite an increase in foreign currency inflows—US$8,465 million in the first eight months of 2024, a 13.4% rise compared to 2023—the parallel market exchange rate continues to spiral, with the ZiG trading at a premium of over 100%, reaching 30 per U.S. dollar. Retailers have defied the government’s directive to price goods according to the official exchange rate, opting instead to price goods in U.S. dollars or adjust ZiG prices to reflect the parallel market rate. For example, goods priced at US$4 are now sold for US$8 in ZiG.
To address these challenges, the MPC took decisive steps, including raising the Bank Policy Rate from 20% to 35% and increasing statutory reserve requirements for demand and call deposits to 30%, with immediate effect. “The MPC is convinced these measures will help address emerging exchange rate risks, anchor inflation expectations, and stabilize prices in the near to short term,” Mushayavanhu said.
Additionally, the RBZ has reduced the amount of foreign exchange that individuals can take out of the country from US$10,000 to US$2,000 and allowed for greater exchange rate flexibility to match the growing demand for foreign currency.
The government’s devaluation of the ZiG, which was introduced in April 2024, reflects the central bank’s struggle to stabilize the currency. Initially launched at 13.56 to the dollar, the ZiG quickly depreciated, trading at 13.9883 on Thursday before the sharp drop to 24.3 today. This move is seen as a response to mounting inflationary pressures and increasing difficulty in enforcing official exchange rates in the market.
Amid the turmoil, the Zimbabwe Revenue Authority (ZIMRA) issued a statement on Thursday urging businesses and individuals to report companies that refuse to accept the ZiG or manipulate Point of Sale (POS) machines to force payments in U.S. dollars.
The central bank’s actions come at a time when businesses and retailers are grappling with the challenges of an increasingly dual-currency economy. With inflation on the rise and exchange rate pressures mounting, the effectiveness of these new measures will be closely watched as the RBZ seeks to restore economic stability.
“The MPC remains vigilant to any risks that could destabilize the economy,” Mushayavanhu assured.
By the time of publishing, major retailers—including state enterprises such as ZINARA and ZBC radio licensing services—had already adjusted their official rates to 24.3 in line with the RBZ’s new benchmark. However, insurance companies were slow to follow suit, with many still operating at the now outdated rate of 13.98. Fast food outlets, too, were gradually shifting to the new exchange rate, though some remained at 13.98, frustrating opportunists who had hoped to exploit the rate disparity for quick gains at retail stores.
