Zimbabwe suffers from an inflation rate of 192 percent. The country’s central bank and government are trying to counteract this with drastic measures. An additional currency should also help. However, the effect is questionable.
While the ECB is still debating when to raise interest rates above zero again, the Central Bank of Zimbabwe has just raised interest rates by 120 percentage points – to a record 200 percent. At the same time, the government reintroduced the US dollar as an additional legal tender, as “Bloomberg” reports.
These are acts of desperation to somehow slow down the rapid depreciation of the Zimbabwe dollar. According to the report, inflation in the poor country had recently risen to 192 percent, the highest level in over a year. Like the rest of the world, Zimbabwe is not only hard hit by rising energy and food prices, but is also suffering from a collapse in its own currency on the foreign exchange market. The Zimbabwe dollar has lost more than two-thirds of its value against the US dollar this year.
Central Bank President John Mangudya is quoted as saying that the Monetary Policy Committee has expressed great concern about the recent rise in inflation. The measures are the latest attempt to deal with a currency crisis dating back to 2009, when the national currency was abandoned in favor of the US currency following hyperinflation. In 2019, the Zimbabwe dollar was reintroduced but immediately began to weaken. Now the government wants to enshrine the use of the US dollar in law for five years, as Finance Minister Mthuli Ncube is quoted as saying.
However, Jee-A van der Linde, an economist at Oxford Economics, told the financial service that higher interest rates are unlikely to curb high inflation. “The current economic situation creates a very difficult business environment and living conditions are expected to deteriorate in the near future.”
