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‘Brace for runaway interest rates’



ZIMBABWE’S largest financial services group, CBZ Holdings, has warned of rising interest rates triggered by conflicts in Eastern Europe and the Middle East. This comes as most central banks maintained tight monetary policy stances during the third quarter of 2023.

The United States Federal Reserve increased the Fed Rate by 25 basis points to the 5.25-5.50% range, whilst the European Central Bank raised its deposits rate from 3.75% to 4.0% – the highest level since 1999.

In South Africa, the central bank, however, maintained the repo rate at a multi-year high of 8.25%.

“Global macro-economic, financial and geo-political developments continued to influence the local operating environment. These elevated global interest rates naturally exerted further upward pressure on the cost of global capital, making external credit lines relatively expensive,” the CBZ says in its third-quarter trading update.

 “Meanwhile, in Zimbabwe, the central bank maintained the bank rates unchanged at 75.0% for the productive sector and 150.0% for non-productive sector, evidently influenced by the need to balance between stimulating economic growth and maintaining macroeconomic stability. The sustained tight monetary policy stance resulted in the country achieving some environment stability on both the currency and goods markets. The Group’s strategic and financial performance were largely shaped by the foregoing during the period under review.

“Going forward, geo-political tensions in Eastern Europe, the Middle East and some parts of Africa will continue to pose significant downside risks to the global and continental macro-economic outlook, especially in the areas of supply chains and crude oil markets. The likelihood of further interest rate hikes also remains relatively high, thereby perpetuating high interest rate risks on externally mobilised debt.”

Experts say in Zimbabwe, the major down[1]side risk remains the projected normal to below normal rainfall forecasts, which may adversely affect output in the agricultural sector, particularly for farmers that depend on rainwater as well as activity in the sectors that depend on the agricultural sector for raw materials.

 “However, these developments may also bring about new opportunities, among them new markets, improved crop quality for those crops that do not require excess water, enhanced activity in other sectors such as mining that are usually affected by excessive rains and grain imports to ensure food security, among others,” the CBZ says.

Last week, Zimbabwe’s central bank warned of a looming credit squeeze in 2024 triggered by a slowdown in the global economy and rising interest rates on International Monetary Fund Special Drawing Rights. — STAFF WRITER

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