Online Reporter
Persistence Gwanyanya
THE reduction of the bank policy rate by the Reserve Bank of Zimbabwe (RBZ)’s Monetary Policy Committee (MPC) at its September 28, 2026 meeting represents a highly calibrated response to an environment of low and stable inflation.
While conventional frameworks anchor policy rates to projected 12 months average inflation, Zimbabwe requires a nuanced approach.
Policymakers must weigh historical currency and price volatility against looming external risks, notably the El Niño-induced drought and high energy prices stemming from the escalating United States-Iran-Israel conflict in the Middle East.
Understanding this policy decision requires analysing the transmission mechanism of monetary policy within a multi-currency regime. In this context, interest rate changes must simultaneously influence domestic credit conditions while preserving the external value of the local currency.
Consequently, it is necessary to dissect the rationale behind reducing the policy rate from 30 percent to 27,5 percent, exploring how this easing aligns with structural consolidation, management of the multi-currency regime and the overarching goal of sustainable growth.
Rationale for calibrated easing
Over the eight-month review period, Zimbabwe Gold (ZiG) inflation averaged 4,2 percent. Despite this figure sitting significantly below the new 27,5 percent policy rate, the authorities opted for gradual easing to maintain crucial policy headroom.
The economic landscape remains fraught with vulnerabilities. Domestically, the El Niño-induced drought poses direct risks to agricultural output, potentially widening the national maize deficit and elevating food prices.
Externally, escalating geopolitical tensions in the Middle East threaten to disrupt global supply chains and sustain high energy prices, which directly inflate the national fuel import bill and exert pass-through inflationary pressures. By calibrating the reduction, the RBZ retains sufficient monetary ammunition to counteract any re-emergence of volatility.
This measured approach signals to the market that stability remains paramount, even as credit costs are incrementally reduced.
The policy adjustment reflects a sophisticated balance of competing objectives: reversing structural dollarisation, supporting productive sector credit and entrenching stability.
In a multi-currency framework, the local currency faces asymmetric pressures from the US dollar, which commands high market preference due to its international reserve currency status.
The authorities must, therefore, drive ZiG demand organically. Crucially, monetary easing is strictly calibrated to the market’s absorption capacity; excessive local currency expansion without commensurate demand risks reigniting inflation.
To systematically drive this demand, in late 2024, the Government legislated that 50 percent of corporate taxes be paid in ZiG. This aligns with the Conditions Precedent (CPs) for transitioning to a monocurrency regime under the National Development Strategy 2 (NDS2).
The exclusive use of ZiG will only occur when all eight CPs are met, ensuring the transition is market-driven and data-dependent, rather than date-based.
These eight benchmarks are low and stable single-digit inflation; adequate gross international reserves providing three to six months of import cover; an efficient and easily accessible foreign exchange management system; stable exchange rate dynamics with minimal over- and undervaluation; increased demand for ZiG through the recalibration of Government tax percentages and the broadening of ZiG payments in the public sector; financial sector stability; an efficient and secure national payment system that promotes ease of payment in ZiG locally; as well as fiscal and monetary policy cohesion with the non-monetisation of deficits.
By explicitly anchoring the transition to these rigorous benchmarks, the authorities are not only ensuring macroeconomic viability but also signalling to foreign and domestic investors that the policy framework is rules-based and transparent.
This predictability is crucial for unlocking the long-term capital investments necessary for structural transformation.
Deepening the ZiG market and banking liquidity
To deepen the local currency market, the RBZ introduced the ZiG-Denominated Term Deposit Facility (ZiGDTDF) in its February Monetary Policy Statement.
It was highly subscribed at deposit rates of 8 percent and 11 percent for 30-day and 90-day instruments, respectively, reflecting strong market absorption capacity.
However, this presents a strategic challenge for banks: They must deploy idle ZiG liquidity into productive lending or risk having excess funds mopped up by the RBZ through zero-interest Non-Negotiable Certificates of Deposit (NNCDs).
As of August 31, 2026, NNCDs stood at ZiG 8,1 billion. This mechanism fundamentally alters bank balance sheet optimisation. By imposing a zero-yield penalty on excess liquidity via NNCDs, the central bank effectively raises the opportunity cost of holding idle liquidity.
Concurrently, the differentiated statutory reserve requirement — 15 percent for demand deposits and 30 percent for savings and time deposits — lowers the reserve burden on term deposits, mathematically expanding the loanable funds base and encouraging banks to extend credit tenors to match the investment cycles of the productive sectors.
Furthermore, the MPC reduced the Targeted Finance Facility (TFF) rate by 2,5 percentage points to 12,5 percent.
The TFF provides cheaper credit to productive sectors and their value chains.
Lowering this rate is aimed at boosting the uptake of the ZiG1,2 billion facility, which currently suffers from low utilisation at ZiG 19 million as of September 4, 2026, ensuring affordable credit reaches the sectors that drive real output and exports.
This calibrated easing is underpinned by profound macroeconomic resilience.
The economy has successfully navigated external headwinds, building on an 8,3 percent gross domestic product (GDP) expansion in 2025. Real GDP growth averaged 6,5 percent in the first quarter of 2026, up from 4,4 percent during the same period last year, catalysed by robust performances in mining and agriculture.
External metrics reflect this consolidation.
For the eight months ending August 31, 2026, total foreign currency inflows surged 37,8 percent to US$14,25 billion, with export receipts reaching US$9,9 billion.
Concurrently, gross international reserves reached approximately US$2 billion, sustaining a two-month import cover and providing a substantial buffer against external shocks.
On the monetary front, annual ZiG inflation decelerated to a historic low of 2,9 percent in August 2026.
Contrary to market sentiments suggesting inordinate money supply growth, the expansion of the ZiG base reflects a structurally low baseline.
As of August 2026, ZiG constituted roughly 11 percent of total credit at ZiG 7,37 billion (approximately US$283 million) and 20 percent of the total money supply at ZiG 28,77 billion (approximately US$1,1 billion), keeping growth well within International Monetary Fund (IMF) Staff-Monitored Programme targets.
Structural reforms, fiscal outlook and drought mitigation
To anchor this trajectory, a World Bank-endorsed foreign currency trading system will be rolled out in the last quarter of 2026.
This system will resolve structural frictions, dispel perceptions of RBZ control over forex trading and mitigate bank disintermediation, thereby enhancing interbank efficiency.
The outlook for the last quarter of 2026 remains highly positive.
Foreign currency inflows are expected to exceed US$20 billion. Merchandise exports are projected at US$14,4 billion against imports of US$11,5 billion, implying a US$2,9 billion trade surplus. Consequently, the current account balance is projected to strengthen to a US$3,5 billion surplus in 2026 from US$2,1 billion in 2025. Domestically, revenue performance exceeds projections.
Collections for the first seven months amounted to US$6,33 billion against a US$5,73 billion target, generating US$730 million in savings.
Projected Government revenue for 2026 has been revised upwards to US$11,3 billion from US$9,5 billion.
The resultant savings will support the economy in 2027 against drought-induced lower revenues and higher social spending.
While a US$810 million financing gap is expected in 2027 (US$12,8 billion revenue versus US$13 billion expenditure), current buffers provide a strong management foundation.
To insulate the economy from climatic shocks, the Government has proactively operationalised a comprehensive six-pillar response mechanism anchored in enhanced strategic grain reserves, climate smart agriculture, a new financing architecture, livestock response, enhanced imports, coordinated capacity building and an early warning system.
Despite anticipated volatility in the fuel subsector, robust foreign exchange buffers and structural reforms will sustain stability.
Overall, the full-year GDP growth target of 5 percent and the ZiG inflation target within the 3 percent to 7 percent Southern African Development Community (SADC) convergence remain highly achievable.
The RBZ’s calibrated easing, coupled with strict adherence to the eight conditions precedent for a mono-currency regime, provides a clear, predictable policy environment. For the market, this translates to reduced borrowing costs, enhanced liquidity management and a fortified local currency, ensuring the economy remains fundamentally strong heading into 2027.
Persistence Gwanyanya is an economist and member of the RBZ Monetary Policy Committee. He is also the founder of Bullion Group International. He writes in his personal capacity. For feedback, email [email protected]
