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Zimbabwe central bank says bank lending freeze is temporary – Reuters

[1/2] People walk past the Reserve Bank of Zimbabwe building in Harare, Zimbabwe, February 25, 2019. REUTERS/Philimon Bulawayo
HARARE, May 10 (Reuters) – Zimbabwe's freeze on bank lending is a temporary measure which is meant to contain inflation and stabilise its economy, central bank governor John Mangudya told state television on Tuesday.
President Emmerson Mnangagwa on Saturday ordered the suspension with immediate effect, saying the move was meant to stop speculation against the Zimbabwean dollar, which has been rapidly devalued on a thriving black market. read more
"We know this is a painful, but necessary, measure. It was necessary because of the increase in inflation. Some entities were now using funds from banks to purchase foreign currency," Mangudya told ZBC.
"It's a temporary, necessary measure to ensure that there is sanity in terms of taming inflation."
Zimbabwe's inflation has started to rise again, with year-on-year inflation at 96% in April, up from 61% at the beginning of the year, mainly due to a rapidly weakening local currency.
Analysts from BancABC, the local unit of pan-African financial group Atlas Mara, said in a research note that the lending freeze threatens the survival of the country's banks.
"The government is using a blunt approach to try and address a long-standing currency conundrum," the analysts said, adding: "Banning lending activities will threaten survival of Banks as this will wipe out 20-50% of their incomes."
The BancABC note said that the freeze could lead to shortages of goods, further price increases and job losses.
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Bank of England Chief Economist Huw Pill said on Monday that Britain is at risk of persistent inflationary pressure from a tight labour market, even if natural gas prices stabilise or fall, implying further rate rises may be needed.
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