Zimbabwe yields world’s highest interest rate title to Argentina

Subdued global growth emanating from geo-economic fragmentation and the effects of tight monetary policy, high-interest rates, credit squeeze and low international commodity prices could pose significant risks to the current stability in the domestic economy,”

By Rhema On Oct 25, 2023

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Zimbabwe has yielded the title of having the world’s highest interest rate to Argentina, after reducing borrowing costs in an effort to stimulate economic growth.

The country’s monetary policy committee has decreased the benchmark interest rate from 150% to 130%, now trailing Argentina, which maintains a rate of 133%.

The MPC took action due to “emerging global risks and the need to keep exchange rate and inflation expectations anchored to support economic growth,” Governor John Mangudya said in an emailed statement on Tuesday.

“Subdued global growth emanating from geo-economic fragmentation and the effects of tight monetary policy, high-interest rates, credit squeeze and low international commodity prices could pose significant risks to the current stability in the domestic economy,” he said.

Unlike Argentina, which increased interest rates by 15 percentage points to 133% on October 12 to combat soaring inflation at 138%, government interventions in Zimbabwe have allowed for a reduction in interest rates, Bloomberg reported.

Zimbabwe’s local currency depreciated by 85% against the US dollar from May to June, resulting in a spike in inflation, which reached 176% in June.

To combat this, the government adopted measures to stabilize the exchange rate, including exchange rate liberalization and incentives to encourage the use of the Zimbabwe dollar.

One such measure was the requirement for corporate taxes to be settled in the local currency, which played a significant role in stabilizing the currency and restoring some degree of price stability.

Earlier in the month, the country also launched a new gold-backed digital currency to halt re-dollarization, which the administration of President Emmerson Mnangagwa worries could destroy the nation’s already precarious economy.

In September, annual inflation decelerated to 18.4% from the previous month’s rate of 77% after the statistics office revised its methodology to incorporate the significant influence of the US dollar in the economy.