RESERVE Bank of Zimbabwe (RBZ) governor John Mushayavanhu stands at a critical policy crossroads as he prepares to present his Monetary Policy Statement this month.
For the first time since 1997, Zimbabwe’s annual local currency inflation has retreated into single digits. That milestone is not symbolic — it is transformative. And it demands a decisive recalibration of monetary policy.
Annual inflation for the Zimbabwe Gold (ZiG) fell sharply to 4,11% in January from 15% in December.
This marks a dramatic turnaround from the 95,8% peak recorded in July last year. In less than a year, inflation has been crushed by more than 90 percentage points.
This reflects tighter liquidity management, improved exchange rate discipline and firmer reserve backing.
The ZiG — introduced in April 2024 amid widespread scepticism — has begun to stabilise.
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Foreign currency reserves have surged to US$1,2 billion, equivalent to 1,5 months of import cover, up from just US$276 million at inception. Reserve money cover has strengthened sixfold. Exchange rate volatility has eased considerably.
These gains signal restored policy discipline.
Yet, monetary policy remains anchored in crisis settings.
The policy rate is still at 35% — a level justified during yesteryear’s currency turbulence.
At the height of instability, such aggressiveness was necessary to anchor expectations and absorb shocks.
The hike from 20% to 35% was an emergency intervention. It served its purpose.It must not become a permanent feature now that inflation has entered the single-digit territory.
Maintaining a 35% policy rate in a single-digit inflation environment risks turning prudence into overkill.
What was once a stabilisation tool now threatens to become a brake on recovery.
The unintended consequences are there for all to see.
Of the ZiG67,5 billion in aggregate loans and advances as at June 30, 2025, an overwhelming 88,4% were denominated in foreign currency.
High borrowing costs discourage businesses from taking ZiG loans for capital expansion, inventory financing or industrial retooling. Instead, firms continue to dollarise their balance sheets, undermining the long-term vision of a mono-currency regime after 2030.
Compounding this distortion are steep statutory reserve requirements. With 30% locked on demand and call deposits and 15% on savings and time deposits, a substantial portion of banking sector liquidity remains immobilised. While such measures were justified to suppress speculative activity and stabilise the currency, they now risk stifling credit creation and slowing economic momentum.
Stabilisation now needs to give way to growth.
This does not mean reckless easing. We are not urging the central bank to throw away the reins.
Rather, the central bank must respond to the prevailing environment.
The improving inflation outlook, strengthened reserve buffers and stabilised exchange rate demands an easing of the tight monetary policy thrust.
A moderate reduction in the policy rate, coupled with a gradual review of reserve requirements, would send a powerful signal that policy is transitioning from defensive to developmental.
Such a shift would lower the cost of capital, stimulate local currency lending and begin correcting the structural bias toward foreign currency borrowing. It would also reinforce confidence that the ZiG is not merely a temporary stabilisation instrument, but a currency with a sustainable future.
RBZ's own five-year strategic plan (2026–2030) speaks of disciplined money supply management calibrated to emerging risks. Calibration must cut both ways — tightening when necessary and easing when conditions allow.
The upcoming Monetary Policy Statement must therefore signal evolution. The emergency phase is over. The consolidation phase has succeeded. What lies ahead is the growth phase.
Failure to adjust risks policy overkill — maintaining excessively tight conditions long after the threat has receded.
It's time to loosen the reins.