After significantly reducing borrowing costs to help promote economic growth, Zimbabwe is ceding the title of "world's highest interest rate" to Argentina
The Monetary Policy Committee of the Central Bank of Zimbabwe announced a 2000 basis point interest rate cut on Tuesday, lowering the country's policy interest rate from 150% to 130%. This also means that the country's interest rate is currently lower than that of Argentina, which announced a rate hike to 133% earlier this month.
The Governor of the Bank of Zimbabwe, John Mangudya, stated in an email statement on Tuesday that the Monetary Policy Committee has taken interest rate cuts because of "emerging global risks and the need to maintain exchange rate and inflation expectations to support economic growth".
He pointed out that the weak global economic growth caused by geopolitical differentiation, as well as the impact of tight monetary policies, high interest rates, credit tightening, and lower international commodity prices, may pose significant risks to the stability of the current domestic economy in Zimbabwe.
Unlike Argentina, which is currently plagued by inflation, the early intervention measures of the Zimbabwe government have enabled it to lower interest rates now.
Between May and June this year, the local currency of this southeastern African country plummeted by about 85% against the US dollar, leading to the country's inflation rate soaring to 176% in June. The Zimbabwean government subsequently announced measures to encourage the use of local currency instead of the US dollar, such as requiring businesses to pay taxes in Zimbabwean dollars to boost the local currency and curb rising consumer inflation.
The Zimbabwe Bureau of Statistics has also revised its statistical methods to take into account the dominant role of the US dollar in the economy. The year-on-year increase in inflation rate in September decreased from 77% a month ago to 18.4%.
Compared to Zimbabwe, where the central bank "violently" stabilizes the exchange rate, Argentina currently seems to have not found more ways to stabilize the country's plummeting peso exchange rate and rising ultra-high inflation, especially in the context of uncertain election challenges.
The Argentine central bank is still adopting the conventional practice of significantly raising interest rates. On October 12th, it significantly raised its benchmark interest rate by 1500 basis points to a shocking 133% in an attempt to curb price growth of up to 138%.