Zimbabwe economy remains caught in a downward spiral driven by poor fiscal performance, exchange rate induced price increases, shortages of foreign currency, severe drought and Cyclone Idai. Economic conditions worsened as witnessed by government’s revision of 2019 growth projections from 3.1% to 6.5% especially in mining and agriculture, which experienced double-digit declines. Inflation remained relatively stable at low levels averaging below 10% from 2009 up to third quarter in 2018 after the announcement of the October 2018 Monetary Policy. The separation of the accounts intensified the multi-tier pricing and inflation figures rising with the last being published at 175.7% mainly driven by effects of monetization of past fiscal deficits, speculative pricing and the continued local currency depreciation. Inflation remains highest in the region as depicted in Figure 1.
Figure 1: Regional inflation rates
To curb the spiraling parallel exchange rate premiums and ease the inflationary pressures, government in February 2019, formalized the trading of foreign currency through introduction of the interbank rate at 2.5 and licensing of the Bureau de change. In June 2019, the country witnessed the removal of the basket of currencies making the Zimbabwean dollar the only legal tender through SI1 142 of 2019 which aimed at strengthening and restoring confidence in the local currency. Additionally, the Reserve Bank of Zimbabwe adjusted the overnight lending rate from 50% to 70% at the beginning of the quarter and consequently reducing to 35% in November.
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