After significantly lowering borrowing costs to help promote economic growth, Zimbabwe is handing over the title of "highest interest rate in the world" to Argentina... The Central Bank of Zimbabwe's Monetary Policy Committee announced a 2,000 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 rates are now lower than those of Argentina. The Argentine Central Bank just announced an interest rate increase to 133% earlier this month.
Zimbabwe Central Bank Governor John Mangudya said in an emailed statement on Tuesday that the Monetary Policy Committee took action to cut interest rates 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 geo-economic differentiation, as well as the impact of tight monetary policy, high interest rates, credit tightening and lower international commodity prices, may pose major risks to the stability of the current Zimbabwean domestic economy.
Unlike Argentina, which is currently suffering from inflation, the Zimbabwean government's early intervention has allowed it to lower interest rates now.
Between May and June this year, the southeast African country's local currency plummeted by about 85% against the U.S. dollar, causing the country's inflation rate to soar to 176% in June. The government subsequently announced measures to encourage the use of local currency instead of the U.S. 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 also revised its statistical methodology to take into account the dominant role of the U.S. dollar in the economy, and the year-on-year inflation rate in September fell to 18.4% from 77% a month ago.
Compared with Zimbabwe, where the central bank "violently" stabilizes the exchange rate, Argentina seems to have not yet found more ways to stabilize the country's plummeting peso exchange rate and rising ultra-high inflation, especially in the context of the current uncertainty and challenges of the general election.
The Central Bank of Argentina is still adopting the conventional practice of sharply raising interest rates. On October 12, it significantly raised the benchmark interest rate by 1,500 basis points to a shocking 133% in an attempt to curb price growth as high as 138%.