Zimbabwe’s Tight Monetary Policy Is Right Direction, IMF Says

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(Bloomberg) — The International Monetary Fund said policy interventions of the last few months by authorities in Zimbabwe were in the right direction and have helped stop the currency’s free-fall, even as the Washington-based lender kept the country’s growth outlook this year at 3.5%.

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“The recent tightening of monetary policy and the contained budget deficits are policies in the right direction and have contributed to the narrowing of the parallel market exchange rate gap,” the Fund said Monday after the conclusion of a week-long virtual staff visit in the country. 

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The economic growth forecast this year half the 7% recorded in 2021, due to a slowdown in agricultural and energy outputs owing to erratic rains and rising macroeconomic instability, the IMF said. Zimbabwe’s Treasury has a higher growth outlook of 4.6%.

Read more: Wild Currency Ride Shows Signs of Settling Down in Zimbabwe

President Emmerson Mnangagwa has led the charge since May 7 to support the embattled Zimbabwean dollar, which was being sidelined by businesses and individuals in favor of the U.S. greenback through a raft of measures. The measures have included a temporary ban on bank lending, introduction of an interbank rate at which most commerce can take place and central bank hiking the key interest rates to 200% — currently the world’s highest.

The Fund said authorities in the near-term are faced with curbing inflationary pressures by further tightening monetary policy, as needed. Consumer prices in August rose 285% from a year earlier, spurring a depreciation of the Zimbabwean currency against the U.S. dollar of more than 80% — making it Africa’s worst performing currency this year.

The Fund recommended that authorities allow greater exchange rate flexibility through a more transparent and market-driven price discovery process, tackling foreign-exchange market distortions and eliminating exchange restrictions.