Zimbabwe Maintains Tight Monetary Policy to Support Currency
TLDR
- Zimbabwe’s central bank will continue its tight monetary policy in 2025 to stabilize the gold-backed ZiG currency
- High interest rates are critical to containing inflation and restoring confidence in the currency
- Monthly inflation slowed to 3.7% in December from 37.2% in October and ZiG has lost 48% of its value since its launch
Zimbabwe’s central bank will continue its tight monetary policy in 2025 to stabilize the gold-backed ZiG currency, which has lost 48% of its value since its launch. Governor John Mushayavanhu said high interest rates are critical to containing inflation and restoring confidence in the currency.
Monthly inflation slowed to 3.7% in December from 37.2% in October. The central bank has raised its key interest rate to 35%, aiming to curb price increases and bolster the currency. Despite these measures, about 90% of transactions in Zimbabwe are conducted in US dollars, reflecting public preference for a more stable store of value.
The Targeted Finance Facility (TFF), announced last year, is designed to finance productive sectors without creating new money, signaling a shift toward fiscal discipline. The Treasury expects the economy to grow 6% in 2025, driven by a recovery in agriculture and growth in the iron and steel industries.
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Key Takeaways
Zimbabwe’s central bank faces significant challenges in gaining public trust for the ZiG currency, which accounts for only 40% of electronic Real Time Gross Settlement transactions. Efforts to increase its usage will rely on flexible policies and convenience for users. The TFF represents a strategic attempt to spur economic growth without fueling inflation, aligning with the broader goal of moving from economic stability to growth. However, reliance on the US dollar remains a major hurdle. With a projected 6% GDP growth rate for 2025, Zimbabwe’s success will depend on maintaining fiscal discipline, supporting productive sectors, and rebuilding confidence in its domestic currency. Balancing these priorities will be crucial in fostering long-term economic resilience.
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