The Reserve Bank of Zimbabwe (RBZ) has increased the interest rate on its overnight window to 70 percent per annum from 50 percent.

This is the second rise this year.

In June the central bank increased the overnight window rate to 50 percent from 15 percent.

“Providing forward guidance on the major macroeconomic indicators, including the desired and expected path of interest rates, exchange rates and inflation.

“In this regard, the Bank’s rate for overnight borrowing has been revised upwards from 50 percent to 70 percent to take account of developments on inflation and the exchange rate,” said RBZ governor Dr John Mangudya in the 2019 Mid-term Monetary Policy Statement.

Zimbabwe’s monetary and fiscal authorities have claimed that the increases in the overnight window rate – and resultantly banks’ interest rate charges is aimed at fighting rising inflation, but the development could have other consequences.

The RBZ has targeted NPL levels of 5 percent, but sectorial average NPLs increased from 7,08 percent in 2017 to 8,25 percent in 2018.

Due to the increased interest rates, it is likely that the NPL levels will increase in the intervening period, although some banks have recorded progress in reducing their NPL ratios.