HARARE — Zimbabwe’s central bank has cut its benchmark interest rate by five percentage points, citing a structural shift in the country’s inflation dynamics that has kept price growth in single digits since the start of the year.

The Monetary Policy Committee (MPC) of the Reserve Bank of Zimbabwe (RBZ) met on Monday and resolved to reduce the bank policy rate from 35 percent to 30 percent, with immediate effect.

Governor John Mushayavanhu, the MPC chairman, said the move was “consistent with the structural shift in inflation dynamics” and did not amount to an easing of monetary policy.

“The MPC underlined that its decision to reduce the bank policy rate does not entail easing monetary policy at this stage, but a realignment of the policy rate to the structural shift in inflation dynamics,” he said in a statement Tuesday.

Zimbabwe’s inflation surged to a peak of 95.8 percent in July 2025 before falling sharply to sustained single-digit levels below 5 percent from January 2026, a trajectory the MPC attributed to prudent monetary policy and anchored inflation expectations.

Month-on-month inflation rose temporarily from 0.5 percent in March 2026 to 1.1 percent in April 2026 amid an oil price shock before reverting to a pre-shock trend of 0.5 percent in May 2026. Annual inflation stood at 4.8 percent in April and 4.4 percent in May.

The MPC attributed the contained pass-through of the oil shock to government fuel tax cuts, business self-restraint on price adjustments, and the use of alternative energy sources. The committee also credited the US-Iran peace deal with precipitating a decline in Brent crude oil prices, describing the development as supporting a “low inflation environment.”

Alongside the policy rate reduction, the MPC cut the interest rate on the Targeted Finance Facility (TFF) from 20 percent to 15 percent, proportional to the bank policy rate reduction, albeit with a cap on banks’ on-lending to productive sectors at an all-inclusive rate of 25 percent.

The committee maintained the current differential statutory reserve requirements – 30 percent for demand deposits and 15 percent for savings and time deposits, for both local and foreign currency deposits.

The MPC pointed to a strong foreign currency inflows environment as underpinning exchange rate stability. Foreign currency inflows amounted to US$8.3 billion as at May 31, 2026, compared with US$6 billion in the same period in 2025, a 39.1 percent increase.

The inflows helped build foreign currency reserves backing the ZiG to over US$1.5 billion as at May 2026, equivalent to 1.5 months of import cover. The ZiG/US$ exchange rate remained stable at between ZiG25 and ZiG27 per US dollar.

The MPC said the accumulation of reserves had enabled the RBZ to intervene strategically in the foreign exchange market “to ensure that all bona fide foreign payment requirements are fully met and concomitantly reinforce exchange rate stability.”

The committee welcomed the uptake of the ZiG Denominated Term Deposit Facility (ZiGDTDF), which received initial subscriptions of ZiG367.2 million for the 90-day instrument and ZiG110 million for the 30-day instrument, at yields of 11 percent and 8 percent respectively.

The MPC said it expected ZiGDTDF interest rates to serve as a guide for minimum savings interest rates, with the aim of generating positive real returns and fostering a domestic savings and investment culture.

The committee also acknowledged ongoing Staff Monitored Programme review discussions with an International Monetary Fund (IMF) mission team and called on the RBZ to “adhere to all the agreed quantitative and structural benchmarks to ensure programme success.”

The committee said it would continue to calibrate its monetary policy stance on a meeting-by-meeting basis and remained “vigilant to emerging risks.”