Online Reporter
Business Reporter
THE Reserve Bank of Zimbabwe has pushed back against accusations that its monetary policy stance is excessively tight and sacrificing economic growth, pointing to stronger-than-earlier forecast economic expansion for 2026 as evidence that caution and growth can coexist.
The central bank is on record saying it will not rush to lower interest rates without guarantees that the macroeconomic gains achieved thus far on the stability front will remain anchored.
Speaking at a post-Monetary Policy Statement breakfast meeting organised by the Confederation of Zimbabwe Industries (CZI), Reserve Bank of Zimbabwe RBZ) governor Dr John Mushayavanhu addressed persistent criticism that the 35 percent policy rate is stifling economic activity, arguing that the results speak for themselves.
“People have been accusing us of being too tight, to the extent where we are sacrificing growth,” the Governor said.
“But we still remember last year. We started by saying GDP (gross domestic product) growth would be 6 percent. Then it rose to 6,6 percent. On the same calibrated rails — the same calibrated targets in the form of reserve money — and we ended up there.”
The official revealed that current projections suggest even stronger performance.
“I think we are likely to grow by more than 8 percent — more than 8,5 percent — on the same policy,” he said.
The forecast, if realised, would represent a significant acceleration from initial expectations and would outpace many regional peers. It also suggests that the tight monetary stance has not had the contractionary effect that critics feared.
The governor acknowledged the difficulty of determining the appropriate policy rate in a volatile economic environment, posing a series of rhetorical questions about monetary theory.
“The question is: what is the neutral rate? Did we get it wrong? If it had been a 15 percent rate, where would we go? That is not for me to say.”
The concept of a “neutral” interest rate — one that neither stimulates nor restricts economic activity — is notoriously difficult to calculate in any economy, let alone one emerging from decades of instability.
The governor’s remarks highlight the delicate balancing act facing the Monetary Policy Committee.
If the rate is set too high, the economy faces stagnation risks. If set too low, inflation expectations may become unanchored — sending the economy back into the cycle of currency depreciation and price instability that characterised previous years.
The reference to “calibrated rails” and “reserve money targets” suggests the central bank is operating with a clear framework, adjusting levers incrementally rather than making dramatic swings that could unsettle markets.
The defence of the 35 percent rate comes amid ongoing debate about whether monetary tightness is necessary or excessive. Business member groups, including CZI, have repeatedly warned that high borrowing costs constrain productive investment and working capital.
However, the central bank’s position appears to be that the proof is in the outcomes: if growth is accelerating toward 8,5 percent, the policy stance cannot be said to be strangling the economy.
The official’s admission that even they cannot be certain what the “neutral” rate would be underscores the experimental nature of monetary policy in a still-stabilising economy — and the necessity of adjusting based on real-world results rather than theoretical models.
Meanwhile, the Reserve Bank of Zimbabwe has pushed back against claims of a liquidity crisis in the economy, arguing that the real issue is a credit crisis, with banks holding significant idle funds that they are failing to deploy as loans.
Dr Mushayavanhu detailed the central bank’s monetary targeting framework and how it has contained money supply growth to levels unthinkable in previous decades.
“Inflation is, by and large, a monetary phenomenon. For us, we have said let’s have monetary targets. Where is the reserve money? And we stick to that — but without sacrificing market requirements,” he said.
The governor explained the methodology behind the bank’s liquidity controls, revealing a data-driven approach calibrated to actual transaction patterns.
“When we come up with an optimum liquidity level, we look at transactions that have been transacted over the past six to 12 months. Then we say: if on a daily basis the market is trending, where should we set the limit?”
“We always set it higher, and then we give the banks room. They have not exceeded that. In fact, most of them have had so much liquidity that we have had to take it on because they have not deployed that money.”
Dr Mushayavanhu directly addressed complaints from the business community about restricted access to bank credit.
“I’ve had several people saying there’s a liquidity crisis in the economy. No, it is a credit crisis. Every day, the market is liquid. You can see it if you look at the data.”
The distinction is critical. Ordinarily, a liquidity crisis means there is insufficient money in the banking system to facilitate transactions. A credit crisis means banks have money but are not lending it — whether due to risk aversion, lack of bankable projects, or unattractive risk-return dynamics.
The revelation that the central bank has had to mop up excess liquidity — effectively soaking up idle funds that banks have not lent — suggests the constraint on economic activity is not the unavailability of money but the unwillingness or reluctance to channel it into productive investment.
The official contrasted current monetary discipline with the chaotic expansion of previous eras.
“We have also ensured that money supply growth is contained at an average of 2,7 percent for 2025. In the past, we used to see money supply growth of 40 percent month-on-month. Of course, when you have that, is it any surprise that you would have hyperinflation?”
The reference to 40 percent monthly growth helps explain Zimbabwe’s repeated experiences with currency collapse. When the money supply expands at such rates, the value of each unit of currency inevitably plummets.
“We have managed to ensure that money supply growth is contained.”
The governor’s remarks highlight the central bank’s determination to maintain discipline even in the face of complaints about tight credit conditions. Having experienced the devastation of hyperinflation, the bank appears willing to accept slower credit growth as the price of stability.
However, the distinction between liquidity and credit also shifts responsibility to the banking sector. If the central bank is providing adequate liquidity and banks are choosing not to lend, then unlocking credit requires addressing bank behaviour — not printing more money.
