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Zimbabwe doubled interest rates to 200% to stop inflation from spiraling out of control

Inflation has become a global phenomenon in recent days.

Around the world, the cost of living is on the rise. For example, Kenyan households have been grappling with rising food and fuel prices in recent months.

The inflation rate is likely to soar further after gasoline prices jumped to a record high in the latest monthly reviews.

The inflation rate reached a six-month high in April of 6.5% with food and energy prices spiraling upward. Similar highs are affecting other African countries and wealthy nations like the United States.

According to the United Nations, Annual global inflation is set to reach 6.7 percent this year. With countries like Zimbabwe also feeling the pinch.

From the latest figures announced by the Zimbabwe National Statistics Agency, the agency reported that the annual inflation rose to 191,7 percent in June.

Since the start of the Russia-Ukraine conflict, Zimbabwe’s inflation rate jumped from 66% to more than 130% in May.

The Zimbabwean dollar (local currency), which has been used in Zimbabwe from 2019–20 after a decade of dollarization, has been losing value rapidly against the US dollar.

The workers have been demanding to be paid in foreign currency, leading to unrest among the country’s labour force.

To stop the inflation from spiralling out of control, Zimbabwe decided to come up with plans to make the United States dollar legal tender for the next five years.

Zimbabwe started using the US dollar along its reinstated local currency in 2020. This was inline to deal with economic shocks brought about by the outbreak of Covid-19.

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The governor of the Reserve Bank of Zimbabwe Mr. John Mangudya blamed the rising inflation on the market’s lack of confidence.

The Reserve bank governor further confirmed that Zimbabwe will continue using a dual currency system for the foreseeable future; based on dual use of the US dollar and Zimbabwe dollar.

The Reserve Bank governor said the lack of confidence by the market came from Zimbabwe’s history of hyperinflation.

“This is reflected in the increasing holdings of foreign currency balances in the banking system,” Dr Mangudya said.

“These balances, however, do not efficiently circulate in the economy due to structural issues in the banking sector.”

According to the International Monetary Fund 2008-09 hyperinflation reached 500 billion%. At the time, 100 trillion Zimbabwean dollar banknotes were not enough to buy basic groceries.


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