Zimbabwe Eases Dollar Curbs, Lifts Rates to Boost Local Currency

Godfrey Marawanyika and Ray Ndlovu, Bloomberg News

A street vendor displays Zimbabwean national flags for sale in Harare, Zimbabwe, on Tuesday, July 31, 2018. Zimbabwe's main opposition party said it was well ahead in the first election of the post-Robert Mugabe era and it's ready to form the next government, as unofficial results began streaming in. Photographer: Waldo Swiegers/Bloomberg , Bloomberg

(Bloomberg) -- Zimbabwe liberalized its foreign-exchange market and raised interest rates, among a new raft of measures aimed at stabilizing the nation’s currency and reining in resurgent inflation.

The central bank will begin selling foreign currency at market-determined exchange rates through banks from Wednesday, the monetary policy committee said in a statement on Tuesday. The measure follows advice last month from the International Monetary Fund that the country remove restrictions on the exchange rate and after the Zimbabwean dollar fell 30% at an auction to 3,674 per dollar.

“This measure is calculated to ensure that the interbank forex market is the primary source for foreign exchange needs in the economy,” according to the statement. “The foreign-exchange auction system shall continue to operate for meeting smaller requirements for foreign payments and for continuous price discovery.”

Zimbabwe’s government has announced a series of steps this year aimed at stabilizing the currency, which has plunged 81% against the dollar since Jan. 1. It’s also battling to rein in an annual inflation rate that hit 86.5% last month, partly reversing six months of consecutive declines. The rising cost of basic goods and services prompted the Zimbabwe cabinet to order a probe into the wave of price surges by businesses, with the results yet to be made public.

The central bank also raised its benchmark rate — already the world’s highest — to 150% from 140%.

The increase in borrowing costs follows a warning by Finance Minister Mthuli Ncube in April that he would push for an increase in rates to stabilize the Zimbabwe dollar.

Tuesday’s MPC meeting was three weeks ahead of a scheduled June 26 gathering. Among the other measures announced by the central bank were:

A 90-day liquidation requirement on export proceeds will fall away
Maximum trading limits will be increased five-fold to $500,000
Trading margins charged by domestic lenders on currency transactions will be aligned with international best practice