Source: RBZ reaches positive real interest rate as inflation eases – herald
Tapiwanashe Mangwiro, Zimpapers Business Hub
FOR the first time in over a year, Zimbabwe has achieved a positive real interest rate, placing the spotlight firmly on the Reserve Bank of Zimbabwe (RBZ) to signal the beginning of monetary easing.
Annual inflation measured in the local currency fell sharply to 32,7 percent in October from 82,7 percent a month earlier.
While the official year-end target is 30 percent, forecasts now point to a possible close between 16 percent and 18 percent.
The RBZ’s bank policy rate currently remains high, at 35 percent.
This level was deliberately maintained as the headline counter-inflation anchor throughout the tight stabilisation period, successfully suppressing speculative borrowing and serving as a disciplining mechanism within the financial system.It is believed that with inflation now coming out lower and projected to drop further, the key question is now the timing and magnitude of the first interest rate cut.
Monetary authorities remain wary of disturbing the obtaining hard-won stability.
The central bank has been insisting that there will be no sudden shifts.If November registers another flat outcome, and if disinflation holds through December, then the year-on-year outcome will compress faster than initially modelled.
Economists are now recalibrating their scenarios accordingly, as the real interest rate becomes the policy anchor and naturally pulls the nominal rate downwards once expectations finally settle.
Economist Mr Malone Gwadu said the RBZ strategy to force out inflationary behaviour has delivered.
“It is quite feasible and achievable given the tight monetary policy stance the RBZ has taken, largely anchored in anti-inflationary intent and anti-exchange rate volatility. This has seen month-on-month inflation largely dying down to ranges below three to five percent. Therefore, gradually, on a yearly basis, the single-digit inflation will be achieved,” he said.The next phase, he added, must transform stability into productivity.
“Inflation is now under control and credit now needs to grow in a way that is productive and not inflationary,” he said.“I foresee gradual loosening of the bank policy rate to curtail the current liquidity crunch, which has had the unintended consequence of slowing economic activity. With the upcoming budget and subsequent Monetary Policy Statement in the first quarter of 2026, we should see a bit of monetary policy loosening.”
Economist Mr Enoch Rukarwa said, with the bank policy rate now higher than the effective year-on-year inflation rate, a review should be considered to stimulate investment and borrowing.
“A 35 percent rate remains very high and restrictive, especially for aggregate investment in the economy,” Mr Rukarwa said.
He, however, warned Zimbabwe cannot afford a reckless rate cut.
“The approach should be gradual, where we do not see a rapid decrease but a gradual movement, whereby banks are allowed to flex this rate on their own in a market structure.”Another economic analyst Mr Tafara Mtutu said the 20 percent outcome for December is realistic, but he believes a single-digit drop might not occur until June 2026, contingent on the policy stance taken in the new Monetary Policy Statement early next year.
“I think it is reasonable for inflation to be below 25 percent. If there is monthly disinflation like we have seen in the last two months, then it is possible that in December we will be below 20 percent,” he said.
It is believed the central bank is likely to cautiously wait until the first half of the year before cutting interest rates.
Some analysts believe that if single-digit inflation is achieved inside the first half of 2026, and if rate cuts begin without triggering a relapse, then Zimbabwe will have crossed the most important confidence threshold of the post-2023 era.
The post RBZ reaches positive real interest rate as inflation eases appeared first on Zimbabwe Situation.