Online Reporter
Rutendo Nyeve, [email protected]
In a move that promises to put home ownership and business expansion within closer reach, the Reserve Bank of Zimbabwe (RBZ) has slashed its policy rate from 35 percent to 30 percent, a decision expected to compel banks to lower lending rates on mortgages, vehicle loans and working capital, easing the cost of credit for families and small traders.
The cut, announced yesterday after Monday’s Monetary Policy Committee meeting, capitalises on a dramatic cooling of inflation from last year’s peak of nearly 96 percent to below 5 percent since January, giving the central bank room to shift focus from fighting price spikes to stimulating economic activity through cheaper loans.
The policy rate, also known as the discount rate, is the benchmark interest rate set by the central bank to guide the cost of borrowing in the economy.
It serves as the primary monetary policy tool used to manage inflation and influence economic activity. When the central bank raises the policy rate, it becomes more expensive for commercial banks to borrow from the RBZ. This cost is typically passed on to customers through higher lending rates. A reduction in the policy rate lowers commercial banks’ cost of funds, which should ideally lead to cheaper loans for businesses and individuals.
For ordinary Zimbabweans, the rate reduction is anticipated to translate into lower interest rates on mortgages, vehicle loans and business overdrafts.
Small and medium-sized enterprises, which form the backbone of the economy, stand to benefit significantly as cheaper credit becomes available for working capital, expansion and job creation.
Lower borrowing costs also mean households have more disposable income to spend on goods and services, further stimulating economic activity and supporting livelihoods across the country.
The MPC, which met to deliberate on recent macroeconomic and financial developments, commended RBZ for the continued implementation of prudent monetary policy.
The committee noted that inflation had declined from peak levels of 95,8 percent in July last year to sustained single-digit levels below 5 percent realised since January this year, thereby anchoring adaptive inflation expectations.
This well-anchored inflation environment has helped the country weather the impact of the recent oil price shock, with only a moderate change in domestic prices relative to the magnitude of the shock.
The impact of the oil price shock was mainly felt directly through fuel price increases, with limited indirect and second-round effects on prices of goods and services in other sectors. Month-on-month inflation increased temporarily from 0,5 percent in March to 1,1 percent in April, before reverting to its pre-shock trend of 0,5 percent in May.
Annual inflation stood at 4,8 percent in April and 4,4 percent in May 2026, indicating the partial pass-through of the oil price shock to domestic prices.
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Despite disruptions to global supply chain logistics due to the Middle East conflict, the domestic economy has remained resilient and is expected to grow by 5 percent in 2026, from the revised estimate of 8.2 percent in 2025.
The robust growth momentum has supported increased foreign currency inflows, amounting to US$8,3 billion as at May 31 compared to US$6 billion in the same period last year, representing a 39,1 percent increase.
RBZ Governor Dr John Mushayavanhu said the decision to cut the policy rate is a strategic realignment rather than a policy reversal, consistent with the improvement in the country’s inflation outlook.
“The MPC underlined that its decision to reduce the bank policy rate does not entail easing monetary policy at this stage, but a realignment of the policy rate to the structural shift in inflation dynamics,” he said.
Dr Mushayavanhu said the committee decided after carefully considering the need to support economic growth while maintaining price stability.
“In view of the structural shift in inflation dynamics to a low and stable inflation environment and the need to support the envisaged economic growth, the MPC resolved to adopt the following policy measures, with immediate effect,” he said.
Dr Mushayavanhu said the MPC also resolved to adjust the interest rate on the targeted finance facility from 20 percent to 15 percent.
“This is proportional to the proposed reduction in the bank policy rate, albeit with a cap on banks’ on-lending to the productive sectors at an all-inclusive interest rate of 25 percent,” he said.
Dr Mushayavanhu expressed confidence in the economy’s trajectory, saying foreign currency reserves backing the ZiG surged to over US$1,5 billion as at May, equivalent to 1,5 months of import cover.
“The sustained increase in foreign currency inflows supported the accumulation of foreign currency reserves backing ZiG to over US$1,5 billion as at May 2026,” he said.
Dr Mushayavanhu said this has enabled the central bank to ensure that all bona fide foreign payment requirements are fully met and concomitantly reinforce exchange rate stability.
On the operationalisation of the ZiG-denominated term deposit facility, the RBZ chief welcomed the initial uptake, saying the committee expects the facility to guide the minimum savings interest rates that ensure positive real returns, support a domestic savings and investment culture and provide impetus to ongoing efforts to develop the capital and money markets, as envisaged under National Development Strategy 2.
Dr Mushayavanhu assured the public that the MPC will continue to monitor developments closely.
“Going forward, the MPC will continue to calibrate the monetary policy stance on a meeting-by-meeting basis based on the evolution of macroeconomic fundamentals. The MPC, however, remains vigilant to emerging risks, and stands ready to make appropriate policy decisions to support the country’s inflation and growth objectives,” he said.
The committee also noted the significant progress made on the development of the new electronic foreign exchange management trading system and highlighted the need to expedite its finalisation to further enhance efficiency in foreign exchange trading.
