Heeding IMF, Zimbabwe Central Bank Raises Interest Rates
With inflation running over 400% a year and headed for 600% by some projections, the Reserve Bank of Zimbabwe is taking the IMF's advic
Zimbabwe’s central bank raised its key interest rate Wednesday for the second time in a month, taking the unsecured accommodation rate for lending to financial institutions to 460% from 430% previously in a bid to halt spiraling inflation of over 400%. Some observers interpreted the monetary tightening as a conciliatory gesture to the International Monetary Fund, which has urged economic officials in Harare to take “bold steps” to fend off an otherwise “bleak” economic outlook. The IMF has projected that the country’s output of goods and services will have collapsed by 7.2% this year. Economist Eric Bloch said the interest rate hike showed that the central bank is serious about curbing inflation, which ran at an annual rate of 411% in October. He said inflation jeopardizes economic policy, as government plans at all levels would fail if basic goods soared out of the reach of most people. Mr. Bloch told reporter Blessing Zulu of VOA’s Studio 7 for Zimbabwe that the Reserve Bank of Zimbabwe regularly reviews interest rates in an effort to make the economic environment more conducive to growth following a half decade of of contraction. Elsewhere, Reserve Bank Governor announced that Zimbabwe will host next month’s annual general meeting of the African Export Import Bank. He noted that Afreximbank is a very important institution for Zimbabwe as it has provided $900 million in financing for grain and fuel imports over the past five years - $195 million of that in 2005. The Cairo-based institution has been Zimbabwe’s largest foreign financing source in a period when international lenders have shunned Harare for what Mr. Gono called a “noncompromising stance against exploitation by former colonial adversaries.” The international consensus view is that Harare has mismanaged the economy and has failed to meet its obligations to the IMF and other global financial institutions. Reporter Zulu turned to Dennis Mandudzo, a former University of Zimbabwe Law School dean and currently a Ph.D. candidate in finance law at Stanford University, California, for perspective on the relationship between Harare and Afreximbank.