Management

EFFECTS OF INTEREST RATE REGIME ON THE INTERMEDIARY ROLE OF BANKS IN ZIMBABWE

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This study was carried out to establish the relevance of the current interest rate regime, in
relation to the role played by the banking sector of intermediating between the surplus and
deficit units of the Zimbabwean economy. The paper analyzed the status quo of the interest
rate structure with the inflation relationship. It identified factors that contributed to the
current position of financial institutions’ intermediary role in the economy. This paper used
questionnaires, unstructured interviews, and document review to gather data. The study
showed that the current hyperinflationary environment has reduced savings due to erosion of
disposable income and distortion of interest rate structures. It was found that the control and
management of interest rates, by the monetary authorities, has resulted in the distortions on
the financial market, discouraging potential savers. The borrowing for productive purposes
at market interest rates is at its all time low as the interest rates for loans are punitive. There
is need for the authorities to ensure that the interest rate regime is accommodative and
attractive for steady mobilization of funds. A study on the compatibility and introduction of
Islamic Banking, where no interest is charged on loans and deposits, was recommended.

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English

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NONE

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