ZIMBABWE: Zimbabwe central bank raises lending rates 150%

Zimbabwe's Central Bank Governor Gideon Gono raised interest rates to 800 percent from 640 percent -- an increase of 150 per cent -- in a bid to curb runaway inflation. Zimbabwe's central bank on Monday (October 1) raised interest rates to tame "angry and formidable" inflation, as the southern African nation struggled with a deepening crisis marked by chronic food and fuel shortages and soaring poverty. President Robert Mugabe has made reducing inflation, the highest in the world at an annualised 6,600 percent, his number one priority. The government introduced a radical price freeze three months ago to try to curb runaway price hikes. The move, however, has prompted businesses to stop stocking bread, milk and other basic consumer items, worsening food shortages and pushing many Zimbabweans to resort to a thriving black market for survival. In a televised speech, Central Bank Governor Gideon Gono announced the bank was increasing the main lending rate to 800 percent from 650 percent and would soon introduce a new currency to end the foreign exchange black market. Gono predicted inflation should decelerate in the medium term but would come under more pressure from spending ahead of the country's joint parliamentary and presidential elections in 2008. Previous inflation forecasts have not been met. Analysts expect inflation to surge further after an official price freeze in June backfired when consumers went on a shopping frenzy leaving shelves empty. Inflation has also devastated the Zimbabwean dollar, prompting Zimbabweans to turn to the black market where it is trading about 10 times lower than the official rate of 30,000 to the US dollar. Gono also announced the country had secured a 200 million U.S. dollar fuel facility and was offering cheap credit to local and exporting companies to revive falling production. He also raised the money retained by exporters to 65 percent from 60 percent and said producers of key crops like maize and wheat would receive half their payment in foreign currency. On his return from last week's U.N. General Assembly, Mugabe said his government would seize defiant businesses over high prices. Mugabe has accused businesses of raising prices without justification, saying this was part of a Western plot to unseat him.

ITN Source | October 3, 2007

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