Mutogo added that prioritising long-term stability over short-term gains is central to the high interest rate policy, which anchors inflation expectations, promotes savings, and strengthens financial stability. “When we consider bank profitability, it is not solely about the headline interest rate.
The rationale is to create a stable environment that enables banks to operate effectively.
A high and volatile inflation environment, with a depreciating currency, is far more detrimental to bank profitability than a well-calibrated policy rate.
The high policy rate is a tool to anchor inflation expectations.
By maintaining a 35% rate, the Central Bank is signalling its commitment to a tight monetary policy stance, which is crucial for achieving the projected year-end annual inflation rate of around 30%.
This rate ensures a positive real interest rate, which is a key factor in promoting a savings culture and financial stability,” he said.
He further noted that a positive real interest rate safeguards depositors’ value and provides a strong base for banking operations. “By maintaining the policy rate above the projected annual inflation rate, the Central Bank is ensuring a positive real interest rate.
This is critical for encouraging a savings culture, as it protects the value of depositors’ money.
It gives banks a solid foundation of domestic currency deposits to work with,” Mutogo said.
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