Zimbabwe’s central bank has kept its overnight accommodation rate at a lowly 35% despite high inflation.

Zimbabwe’s annual inflation is estimated at over 600%.

The announcement was made by Reserve Bank of Zimbabwe (RBZ) governor Dr John Mangudya during the first Monetary Policy Statement event of for 2020.

In view of the inflationary pressures, experts and observers largely expected the RBZ to announce measures to fight inflation.

In normal circumstances inflation tends to affect interest rate levels, that is, the higher the inflation rate, the more interest rates are likely to rise.

This usually happens because lenders tend to demand higher interest rates as compensation for the decrease in purchasing power of the money they are paid in the future.

However, the RBZ has taken a different path:

“Following Monetary Policy Committee (MPC) deliberations, the Bank reduced its Policy Rate on overnight accommodation from 70% to 35%, effective 20th November 2019, in order to promote confidence in the economy and minimize non-performing loans.

“At its meeting on 14 February 2020, the MPC resolved to maintain the Policy Rate at 35 percent per annum,” said Dr Mangudya today.

“The interest rate on the Medium-term Bank Accommodation (MBA) facility was maintained at a level that reflects the yield on the open market for Treasury Bills which is currently at between 15 to 18 percent per annum.

“The (central) bank through the MPC will continue to proactively guide the market on the expected path of interest rates as part of its efforts to build on policy transparency and confidence.”

Today’s MPS came within a macroeconomic context that is suffering from the consequences of high inflation that followed from the liberalization of the exchange rate and fiscal consolidation last year.