Finance and Economic Development minister Mthuli Ncube has warned the country to brace for an imminent rise in interest rates.
Interest rates in the southern African nation have been capped at 12% for the past two years, and bankers have been pressing for a review of the lending rates to avert a collapse of the banking sector.
“Expect interest rates to go up, that is how the monetary policy works if there is a shortage of liquidity or if the inflation rate is up,” Ncube said while addressing journalists on the sidelines of the Zimbabwe Accountants Conference 2019 in the capital yesterday.
He said Zimbabwe’s continued use of the United State dollar (US$) as a local and transacting currency was no longer sustainable, because it made the country’s exports uncompetitive.
“Three years ago, I did some analysis and found out that Zimbabwe had lost 50% competiveness in terms of export commodities by using the US$ as a transacting currency as well as a local currency,” Ncube said.
“The central bank was borrowing for you to spend money on a daily basis and this is not sustainable. We were borrowing about $2 billion just to use the US$ as the local currency and we can’t work like that. Zimbabwe needs to be normalised.”
The Treasury boss, who is targeting to cut the country’s budget deficit to single digit figures by year end, said the central bank and the fiscus have to protect the value of the local currency.
“Our job as the fiscus and the central bank is to protect the value of the local currency so that we can have confidence in it,” Ncube said.
“That protection starts with making sure that on the fiscal front we run a small deficit and not double digit and we determine that this year the deficit will be a single digit from what it currently was.”
He said the interbank foreign currency trading platform had been introduced to protect the local currency and strengthening the micro institutions for the monetary sector.
“We are not yet ready to target inflation because inflation is too high. When inflation calms down to a lower double digit, 12 to 15, then we will target it. For now, we are targeting qualities or monetary balances,” Ncube said.
He said since the government started charging duty in the currency in which a vehicle was acquired, currency deficit had gone down and this had helped calm inflation.