Country Report Zimbabwe September 2010

Outlook for 2010-11: Monetary policy

Severe foreign-exchange shortages have shaped monetary policy in recent years, undermining all economic activity. The effective dollarisation recognised in the 2009 budget adds a new dimension to this, with monetary policy rendered even less effective. The government is studying the possibility of joining the Southern African Common Monetary Area, which currently comprises South Africa, Lesotho, Namibia and Swaziland, but any formal link to the rand is unlikely before mid-2011 given the previous disparity between inflation rates in Zimbabwe and other southern African nations, as well as concerns about more restrictive capital-account controls. Bank lending rates have fallen very sharply with the decline in inflation, but the pace of the slowdown is likely to moderate given liquidity issues and continuing problems in the banking sector.

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