In the high-stakes calculus of emerging-market monetary policy, timing is everything.
The Zimbabwe central bank governor, Dr Mushayavanhu's decision to maintain the Bank Policy Rate (BPR) at 35% in the February 2026 Monetary Policy Statement was, in hindsight, not merely prudent, but is the binding constraint preventing a classic sudden-stop scenario in the country’s economics considering the conflagration in the Middle East right now.
The geopolitical fall out entailing the Iran war has given wind to Brent crude oil price sails, pushing it from US$72 to US$120 per barrel, and that is only in the opening week of the first salvo of incendiary projectiles being fired by the USA and Israel, and Iran retaliating to every American they could hit in retaliation.
And it’s yet to go even higher!
The Reserve Bank of Zimbabwe's (RBZ) hawkish choice to maintain the Bank Policy Rate (BPR) at 35% anchor, in hindsight for some experts - this writer included - who had clamoured for it to be lowered to around 15%, in light of the sub 4% inflation rate, the governor has been vindicated after all.
This is being validated through the commodity-price shock channel of “open-economy models”. For a country with a nascent currency regime and facing acute vulnerabilities from a high importation quotient on its current account such as Zimbabwe has, the almost protectionist high BPR becomes a survival arithmetic.
The RBZ's explicit commitment to full reserve backing of every Zimbabwe Gold (ZiG) issued provides the nominal anchor which a premature BPR easing would have shattered.
As at end-December 2025, reserve money stood at ZiG 5.337 billion, of which physical currency in circulation was ZiG 510 million, representing 9.55% of the monetary base, and 3% of broad money M3.
At the prevailing interbank rate of ZiG 25.5 per US$1, this equates to a ZiG monetary base of approximately US$209 million and physical cash of US$20 million.
This disciplined framework preserved Zimbabwe's fragile 1.5 months of import cover and the 30% hard-currency export retention mechanism, that currently finances reserve accumulation.
So, given this, any deviation toward the 15% BPR and we had advocated, with the reason (the fiscal side is on an infrastructure building drive, and bank lending had to be incentivised to grow loan books as current loan-to-deposit ratio was low at 68% - with the RBZ itself needing to introduce a Targeted Finance Facility to help disseminate loans directly to the market as a result), would have signalled policy inconsistency, triggering capital flight in a actually in this open-economy setting, exacerbated by imperfect capital controls.
Back to the suddenly high, and likely to continually rise oil prices, at least in the short term, our assessment confirms there is high transmission risk for Zimbabwe.
A US$10 per barrel increase in Brent crude generates an average 0.2 percentage-point rise in global headline inflation, and a 0.5 percentage-point rise in Global South inflation (International Monetary Fund, 2025, “World Economic Outlook”, October 2025 Update, Chapter 2, p. 28).
For Zimbabwe, our modelling confirms, the pass-through coefficient is structurally higher: energy and fuel constitute roughly 22–25% of the merchandise import bill (Ministry of Finance, Economic Development and Investment Promotion, 2025, “2026 National Budget Statement”, p. 51; RBZ, 2025, “Quarterly Economic Review Q3 2025”, p. 32).
The 2026 Budget projects total merchandise imports of approximately US$10 billion, of which fuel and electricity imports alone account for roughly US$2.2–2.5 billion.
A surge from US$72 to US$120 per barrel would therefore add approximately US$1.056 - 1.2 billion to the country’s annual import bill!
Applying the same 0.5 percentage-point per US$10 pass-through yields an additional 2.4 percentage-point inflationary impulse on the domestic price level. That’s a serious doubling of current inflation levels if there is no mitigation, back up towards 6.2%, in the absence of offsetting policy.
The drag on economic growth rate of this fuel increase is equally material for the country.
Each US$10 oil shock imposes a 0.3 percentage-point reduction in real Gross Domestic Product (GDP) growth for Global South economies through higher input costs, compressed real incomes, and worsened terms of trade (World Bank, 2025, “Global Economic Prospects”, January 2025, p. 67).
For Zimbabwe's projected 5% real growth in 2026 (Ministry of Finance, 2025, “2026 National Budget Statement”, p. 20), a US$48 shock would shave 1.44 percentage points, lowering real growth to 3.56%.
It is thus very clear to all now that had the BPR been cut immediately to 15%, the domino effects would have been acute.
Our calibration yields an equilibrium nominal rate of approximately 7–9%, so cutting the BPR to 15% would have left real rates positive but would have signalled premature easing, which the Governor actually alluded to in his presentation speech, with an analogy of a patient needing to finish the medication course regardless if they feel better midway through.
In this scenario of such a high pass through rate, a high velocity of money from affordable credit creation with low rates plus high import bill both acting as catalysts, the exchange rate would have likely depreciated sharply beyond ZiG 25.5/US$1, raising the local-currency cost of the US$10 billion import bill and so adding a second-round pass-through effect of 1.5–2.0 percentage points via imported intermediates.
Domestic banks would have faced higher funding costs on foreign-currency liabilities, widening the interest-rate spread and contracting private credit growth via the financial accelerator mechanism.
The 2026 Budget's infrastructure and mining capital expenditure (ZiG 10 trillion equivalent) relies on complementary private financing; tighter credit conditions would have reduced the fiscal multiplier from an estimated 1.2–1.5 to below 1.0, eroding the projected 5% growth impulse.
Certainly the numbers paint the picture vividly.
In the balance of probabilities, the Iran conflict is not a short-lived supply disruption amenable to "looking through". Bombing of infrastructure in Kuwait, Qatar, Saudi Arabia and Iran itself has damaged loading terminals, pipelines and refining capacity whose repair timelines exceed 12–24 months even under ceasefire scenarios (International Energy Agency, 2026, “Oil Market Report”, February 2026, p. 34).
This creates a persistent negative supply shock, shifting the short-run aggregate supply curve leftward and generating stagflationary pressure, requiring tighter policy (higher real rates) to stabilise inflation expectations.
Central banks in the Global South that eased prematurely post - COVID pandemic faced second-round wage-price spirals and loss of anchor credibility (Organisation for Economic Co-operation and Development, 2025, “Economic Outlook”, November 2025, p. 89). The RBZ's 35% BPR already embeds a hawkish buffer against exactly this scenario, maintaining real rates above 30% while inflation is, currently, at 3.8%.
The stance also safeguards the 30% export surrender mechanism. Zimbabwean exporters retain 70% in their foreign currency receipts, while surrendering 30% for conversion at the interbank rate.
A lower BPR rate would have weakened the ZiG, raising the opportunity cost of surrender for these exporters, and consequently encouraging “under-invoicing” or even parallel-market diversion.
The current hawkish stance preserves the incentive compatibility of the retention policy, ensuring steady reserve accumulation (US$1.3 billion by end-2025, covering reserve ZiG 5.88 times). This in turn supports the Budget's external-debt resolution strategy and the targeted build-up toward 3–6 months of import cover by 2030.
Finally, the stance buys time for structural reforms embedded in the Budget, mining fiscal incentives, cotton-to-clothing, ore-to-smelted minerals, leaf tobacco-to-cigarettes, etc value chains, and digital-economy investments that will thrive without the distraction of exchange-rate volatility.
Governor Mushayavanhu's maintenance of the 35% BPR was not merely prudent; it was the binding constraint that, with 20 20 hindsight vision, likely prevented a classic emerging-market sudden-stop scenario, under an oil shock of this magnitude and duration.
The numbers (ZiG monetary base, physical circulation, import bill including fuel component, GDP, and current import cover) demonstrate that any easing of the BPR would have triggered depreciation, imported inflation, growth rate drag, and erosion of fiscal space incompatible with the 2026 Budget's transformation objectives.
In an environment where oil prices could indeed actually breach the US$120 pain threshold, Zimbabwe's monetary policy must remain the hawkish anchor for a fragile new currency.
The mathematics of open-economy macroeconomics leaves no room for ambiguity.
Discipline today preserves policy space tomorrow.