Low inflation, rising reserves and falling interest rates signal progress. But the real test of monetary reform is whether Zimbabweans can trust their money, invest with confidence and build businesses without unnecessary barriers.
By Tinotenda Bhunu
HARARE – ZIMBABWE’S monetary authorities have reason to feel pleased. Inflation is down, foreign currency reserves are up, and the Reserve Bank of Zimbabwe (RBZ) has started cutting interest rates. After years of instability, households and businesses that lived through currency depreciation and unpredictable policy are finally getting some relief.
The RBZ’s Snapshot on Recent Monetary, Currency, Price, and Financial Developments for the Third Quarter of 2026 paints an improving picture. Annual ZiG inflation dropped to 2.9 per cent in August, then edged up to 3.7 per cent in September. The Bank Policy Rate came down from 35 per cent in June to 27.5 per cent in September. Foreign currency reserves rose to roughly US$2 billion.
Those are real gains. They suggest that monetary restraint, fiscal discipline and better foreign currency inflows are starting to pay off.
But one question gets less attention than the headline figures. Is Zimbabwe building a genuinely stable monetary system, or just enjoying a quiet spell?
The difference matters. Inflation can fall without people regaining faith in the domestic currency. Interest rates can drop without a single productive investment following. Reserves can grow while the institutional weaknesses that make people distrust local money stay exactly where they were.
So the goal has to be bigger than tidy numbers. Zimbabwe needs a system where stability is credible, decisions are predictable, and people can be sure their savings won’t be wiped out by an arbitrary policy change.
That means looking at what the Reserve Bank has achieved, and at what’s still undone.
Lower inflation is progress, but confidence is the real test
Few measures of monetary stability are as visible as inflation, because it touches almost every economic decision.
When prices climb fast, salaries buy less, savings stop feeling safe, businesses can’t work out their costs, and households stop planning beyond next week. People start protecting themselves. They buy goods earlier than they need to, hold foreign currency, or avoid saving in the local unit.
None of that is irrational. It’s a sensible reaction to money that can’t be relied on to hold its value.
Zimbabweans know this experience well.
The RBZ snapshot reports that annual ZiG inflation fell to 2.9 per cent in August 2026 and rose to 3.7 per cent in September. Monthly inflation stayed fairly low too, at 0.54 per cent in September.
That’s a significant improvement. Businesses find it easier to forecast spending, negotiate contracts and plan production, and households benefit when rising prices aren’t constantly eating into their incomes.
Still, low inflation and a trusted currency aren’t the same thing.
Inflation tells you how fast the general price level is moving. Confidence in a currency is about whether people are willing to hold it, save in it and transact in it without feeling they need cover against future losses.
A currency can post low inflation while people keep choosing another one for savings, big purchases and long-term contracts.
The real test isn’t whether prices are rising slowly today. It’s whether people believe their money will buy as much tomorrow.
This is where Zimbabwe’s monetary debate has to move past the inflation statistics. We need to know whether the recent improvement marks a lasting change, or a calm period that could still be upset by fiscal pressure, foreign currency shortages or a shift in market expectations.
One quarterly report can’t settle that. It takes sustained evidence over time.
The ZiG question: a currency cannot be trusted into existence
The Zimbabwe Gold currency, known as ZiG, was another attempt to establish a working domestic monetary unit.
But what ultimately matters for any currency isn’t its name, the assets on a central bank’s balance sheet, or what officials say about it.
It’s confidence.
People use money because they expect others to take it in exchange for goods and services. They hold it because they believe it will still be useful later. Businesses price in it when they trust it enough to calculate costs, revenues and expected profits.
Announcements can’t dictate any of that for long. It comes out of monetary credibility, people’s actual experience, and the institutional setting around them.
Zimbabwe shows why. After repeated bouts of instability, people have strong reasons to guard against the next depreciation.
The US dollar’s continued role in everyday transactions reflects that history. For many households and businesses, holding foreign currency is a practical answer to uncertainty, not a statement about ideology.
The takeaway is simple. Winning back confidence in the ZiG takes more than a few months of low inflation.
The Reserve Bank has to show that its discipline will hold up under political pressure, fiscal strain and changing conditions. Government has to show that public spending won’t keep undermining the monetary framework.
At bottom, this is an institutional problem. A credible currency needs predictable rules on money creation, a sustainable fiscal position, and confidence that the institutions running it will keep their word.
Then there’s the matter of choice.
When people are made to use a currency they don’t trust, official compliance can hide real weakness. Giving them more freedom over how they save, price and settle transactions offers a more honest reading of confidence.
If the ZiG becomes more attractive because it reliably preserves purchasing power and works well in daily transactions, its use can grow on its own merits. That’s a firmer base for credibility than administrative requirements that manufacture demand.
We shouldn’t try to force Zimbabweans to show confidence in their currency. We should create conditions where having confidence is the rational thing to do.
Rising reserves: what do the numbers really tell us?
The RBZ reports that foreign currency reserves backing the domestic monetary framework rose to about US$2 billion by September 2026. It also notes better foreign currency inflows and lower uncovered foreign currency demand.
These things matter. Reserves strengthen the authorities’ ability to meet external obligations, support confidence in the currency framework and handle periods of external pressure.
But reserves need careful reading. A reserve figure counts available external assets. It doesn’t give a full picture of an economy’s monetary health.
What matters is the quality, accessibility and sustainability of those assets. How much of the stock can actually be tapped? How does it compare with import needs? Are inflows well diversified? Can the economy keep earning foreign exchange if commodity prices fall or external financing tightens?
Reserves can cushion external shocks, but they can’t permanently stand in for an economy’s ability to earn foreign currency.
That ability rests on productive activity in mining, agriculture, manufacturing, tourism and other export industries. It also rests on whether businesses can invest, produce and trade freely. An economy leaning on a narrow band of commodity exports stays exposed to swings in international prices and output.
Likewise, making it needlessly hard to import productive inputs can damage the very industries expected to earn tomorrow’s export revenue.
The policy distinction is worth spelling out. Reserves can steady monetary conditions in the short run. A competitive productive sector is what makes that stability last. The two should reinforce each other.
So Zimbabwe should look past reserve accumulation to the economic institutions that decide whether reserves can be replenished through growing production, investment and voluntary trade.
The strongest reserve position isn’t one propped up by good inflows today. It’s one backed by an economy that can generate foreign exchange steadily, even when outside conditions turn unfriendly.
Interest rate cuts: will cheaper money produce more investment?
The RBZ cut its Bank Policy Rate from 35 per cent in June 2026 to 27.5 per cent in September, a signal of gradual easing as inflation cools.
In principle, lower policy rates reduce borrowing costs, improve credit conditions and encourage investment. Firms may find working capital, expansion and equipment easier to finance, and households may get better access to credit.
But the link between policy rates and productive investment isn’t automatic or guaranteed.
A cut in the central bank’s rate doesn’t necessarily bring commercial lending rates down by the same amount. Banks still weigh funding costs, credit risk, collateral and general uncertainty when they set lending terms.
For a small business struggling to get a loan, the headline policy rate may be only a small part of the problem. It might lack acceptable collateral. It might face unpredictable licensing rules, unreliable access to foreign currency, or doubt about whether it can keep the returns from a successful investment.
Lower interest rates can’t fix those constraints alone, which is why monetary easing has to come with reforms that improve the climate for productive enterprise. Banks need confidence in the borrowers they fund. Businesses need predictable rules. Investors need assurance that contracts will be honoured and property rights protected.
A note of caution is warranted too. If rates fall faster than underlying conditions justify, or fiscal pressures return, inflation expectations could climb again. The aim isn’t cheaper credit at any cost. It’s creating conditions where sustainable investment can grow without giving up price stability.
Easing should ultimately be judged on whether it supports productive activity without bringing back the instability it was meant to escape.
Zimbabwe needs investment that raises output, creates jobs and expands the supply of goods and services. Credit that only funds consumption, speculation or unproductive spending can’t give growth the same foundation.
The challenge, then, is to make financing more accessible while protecting the monetary credibility that made lower rates possible in the first place.
Monetary stability cannot be separated from fiscal discipline
The RBZ credits the improvement partly to prudent monetary policy working alongside complementary fiscal measures.
That’s an important admission. Monetary policy doesn’t operate in isolation. Government spending, taxation, borrowing and the management of public institutions all shape the environment the central bank works in.
When public spending keeps outrunning what can sustainably be financed, governments face hard choices. They can raise taxes, build up debt, delay payments or turn to financing that eventually presses on the monetary system.
If monetary financing leads to excessive money creation, the results can include rising prices, exchange rate pressure and sinking confidence. The details depend on circumstances, but the broader principle holds: a central bank can’t permanently make up for an unsustainable fiscal position.
That’s why the durability of Zimbabwe’s recent progress depends partly on government’s willingness to stay disciplined.
Discipline shouldn’t be mistaken for cutting spending wherever possible, though. The composition of spending matters. Money that improves infrastructure, public health, education and the institutional environment can build long-term productive capacity. Spending that delivers little public value while creating persistent financing pressure can weaken stability.
The real question is whether public resources are allocated transparently, efficiently and in ways that strengthen the economy’s productive base.
Government must also resist treating good times as permission to relax. A commodity price boom, stronger foreign currency inflows or temporarily subdued inflation can create a false sense of security. The true test of policy is how institutions behave when conditions get hard.
Monetary and fiscal policymakers both need a framework that can stand up to political and economic pressure. Credibility is built when commitments are kept consistently, not just when discipline happens to be convenient.
The missing link: property rights and economic freedom
Monetary statistics can’t capture a broader institutional issue.
An economy can bring inflation down and build reserves while businesses still face barriers to investing, expanding and competing. This is where property rights and economic freedom come in.
Investment is a bet on the future. A business owner commits resources now, expecting production, sales and later revenue to justify the outlay. That bet gets harder to make when ownership is insecure, contracts are hard to enforce, regulations shift unpredictably, or market access depends on administrative permission.
Picture a small manufacturer wanting to expand. Lower inflation and better credit help. But if it can’t reliably secure premises, import essential machinery, get foreign currency for inputs, or predict the regulatory conditions it will face, the investment may never happen.
Monetary stability improves the climate for investment. It can’t replace the institutions that make investment worthwhile.
Agriculture is no different. Farmers need confidence that money spent on irrigation, equipment, storage and soil improvement will pay back over a long enough period. Secure, transferable property rights can strengthen those incentives, though the right legal arrangements may differ across forms of land ownership.
Businesses also need freedom to respond to what consumers want. When licensing restrictions, import controls or needless compliance costs keep entrepreneurs from reaching inputs and markets, production costs rise and competition suffers.
Such measures are often defended as protecting local industry. But protection turns counterproductive when it shields inefficient producers from competition while loading higher costs onto consumers and onto businesses that depend on imported inputs.
The alternative isn’t scrapping all regulation. It’s clear, proportionate and predictable rules that protect legitimate interests without getting in the way of productive activity.
The link to monetary policy is worth stating plainly. A stable currency helps businesses calculate costs and plan investments. Secure property rights and open markets help them act on those plans. Neither is enough alone.
Monetary credibility creates room for planning, and secure property rights and economic freedom help turn plans into production, investment and jobs.
If Zimbabwe wants monetary stability to underpin lasting recovery, institutional reform has to be part of the same conversation.
What should Zimbabwe do next?
The third-quarter snapshot is a chance to consolidate progress, not to declare victory. The next stage should focus on strengthening the institutions and incentives that make stability sustainable.
First, protect the credibility of monetary policy. The Reserve Bank should keep prioritising price stability and explain its decisions openly, with clear accounts of inflation trends, reserve adequacy and the risks ahead. Predictability matters because households and businesses decide partly on what they expect policymakers to do next.
Second, maintain fiscal discipline. Government should make sure spending commitments rest on sustainable financing. Public expenditure should be judged by its economic and social returns, and financing practices that undermine monetary stability should be avoided. A credible monetary framework needs a fiscal environment that doesn’t keep leaning on it.
Third, strengthen foreign currency generation through production and trade. Zimbabwe should improve conditions for exporters, encourage investment across productive sectors and remove unnecessary barriers that raise the cost of doing business. Foreign currency stability lasts longer when it rests on diversified production and competitive exports rather than a narrow set of inflows.
Fourth, improve the environment for private investment. Predictable regulations, effective contract enforcement, secure property rights and simpler administrative procedures all reduce the risks of long-term investment. Reform should also tackle the barriers that stop small businesses from formalising, getting finance and growing.
Fifth, measure success beyond headline inflation. Inflation remains essential, but policymakers should also look at currency usage, credit to productive enterprises, private investment, employment, productivity and whether households can preserve their purchasing power. These indicators show whether stability is turning into real economic opportunity.
The aim is an economy where stability shows up not just in statistical reports but in the everyday decisions of households, farmers, workers and entrepreneurs.
Conclusion: stability must become a credible promise
Zimbabwe’s latest monetary figures tell a story of meaningful progress. Lower inflation, growing reserves and a lower policy rate suggest the monetary environment has improved, and that deserves recognition given the country’s history of currency instability.
But progress isn’t completion.
A currency becomes credible through consistent performance. Investment grows when entrepreneurs can reasonably expect to keep the returns of their effort. Savings become attractive when people trust that their purchasing power won’t be arbitrarily eroded.
All of this depends on monetary discipline, but it also needs fiscal responsibility, secure property rights, predictable institutions and an economy where people are free to produce, trade and invest.
The Reserve Bank can contribute by maintaining a credible monetary framework. Government must make sure fiscal and regulatory policy backs that goal rather than cutting against it. And the private sector needs room to respond to opportunity, create jobs and expand production.
In the end, monetary stability isn’t there to produce impressive quarterly statistics. It’s there to make economic life more predictable and productive.
A worker should be able to save without constantly fretting about what their earnings will be worth. An entrepreneur should be able to plan an investment without fearing arbitrary policy changes. A farmer should be confident that improving production will be worth the cost. A business should be able to get inputs and reach customers without needless barriers.
Those are the practical outcomes by which economic policy should be judged.
Zimbabwe has made progress towards monetary stability. The challenge now is to make it durable, by strengthening the institutions that sustain confidence and letting productive enterprise flourish.
A stable currency is an important foundation for prosperity. But prosperity ultimately depends on what people are free to build on top of it.
Tinotenda Bhunu is an economist by profession. LinkedIn: https://www.linkedin.com/in/tinotenda-bhunu-114645208?utm_source=share&utm_campaign=share_via&utm_content=profile&utm_medium=android_app
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