This has largely been caused by government overspending, which has also led to a shortage of foreign currency and a loss of international confidence. The central bank asked the commercial banks to impose a pegged exchange rate to stop the slide of the Zimbabwe dollar, which lost half its value in three months. At the same time borrowing rates for the public have been hiked steeply, while the central bank has raised the borrowing rate for commercial banks. Industrialists are worried that tight monetary policies will lead to massive job losses and a fall in consumer spending.
Industrialists are worried.
The high interest rates have meant that a number of businesses have closed down, shelved expansion plans or downsized. Economists say those hurt most are highly indebted and smaller enterprises that cannot access cheap offshore financing. We are concerned that increased government borrowing from the domestic market through treasury bills is the major cause of high money supply growth. He notes that the policy of increasing interest rates will not achieve intended results unless there is a drastic cut in government expenditure. It is also high time that the Reserve Bank was given legal powers to set inflation and money supply targets.