The Reserve Bank of Zimbabwe has increased its main lending rate to 150%, undoing a rate cut made in March, as it faces challenges with the currency crisis.
The bank’s monetary policy committee (MPC) said on Tuesday that the foreign currency auction, which was launched in 2020 to set the exchange rate, will no longer be the “primary source of forex”. Instead, the interbank market will take that role, and banks will sell forex to customers.
“From 7 June 2023, the Bank will sell foreign currency at the market-determined exchange rate through banks to support and strengthen the foreign exchange interbank market, and banks will then sell the foreign currency to their customers,” the MPC said.
“This measure is meant to ensure that the interbank forex market is the main source for foreign exchange needs in the economy and that the foreign exchange auction system will still operate for meeting smaller requirements for foreign payments and for continuous price discovery.”
The authorities are struggling to control the exchange market, where the Zimbabwe dollar has fallen over recent weeks on both the formal and informal markets. This has caused sharp price increases, leading to accusations of “political sabotage” from a government that is preparing for elections in August.
The policy changes show how desperate the authorities are to find a solution.**