RBZ cuts money supply to stem inflation

• Interest rates unchanged at 500%

• RBZ refuses to devalue currency

• Zim inflation hits new record

By Staff Reporter

ZIMBABWE'S Reserve Bank governor Gideon Gono has unveiled a battery of belt-tightening measures including slashing the money supply to put the brakes on four-digit inflation.

Gono however did not devalue the local currency, saying it was no panacea.

"The urgency of the need to reduce inflation impels that 2007 be the year for unprecedented fiscal and monetary policy restraint," Gono said a monetary policy statement.

"To this end, the Reserve Bank will reduce broad money supply growth from the current levels of over 1,000 percent to between 415 and 500 percent by December 2007 and subsequently to under 65 percent by December 2008."

Gono bemoaned tensions between political rivals in the economically-ravaged nation and urged Zimbabweans to join hands to fight inflation, which stood at 1,281 perecent in December.

He warned that if no bold correctives were taken "the inflation dragon will swallow our economy."

"We currently observe latent political tensions in as much as there are economic and social tensions arising from the economic hardships the people are experiencing across the board," Gono said.

"Such disunity and distrust between us does not augur well for an economy seeking to turn around and take off."

Zimbabwe is in the seventh year of economic recession marked by four-digit inflation and acute shortages of basic commodities. At least 80 percent of the population live below the poverty threshold.

Gono called on the government to withdraw subsidies including a scheme under which the government was setting a litre of petrol or diesel to public transporters at a rate nearly 10 times lower than the price of bottled water.

He also queried a scheme under which the government bought a tonne of the national staple cornmeal from farmers at 52,500 dollars (210 US dollars) a tonne and sold it to milling companies at 600 Zimbabwe dollars a tonne. - AFP

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