HARARE, (Reuters) – Zimbabwe’s ban on banks lending is temporary and is designed to stabilize the economy. This was stated by John Mangudya central bank governor on Tuesday.

The suspension was ordered by President Emmerson Mnangagwa with immediate effect. He said the decision was to end speculation about the Zimbabwean dollars, which have been quickly devalued in a vibrant black market.

We know that this painful but essential measure is necessary. This was due to the rise in inflation. Mangudya said that some entities used funds from banks now to buy foreign currency.” ZBC was informed by Mangudya.

“It is temporary but necessary in order to control inflation.”

The Zimbabwean inflation rate has increased again. In April it was 96%, an increase of 61% from the start of the year.

In a research note, analysts from BancABC (the local unit of pan African financial group Atlas (NYSE 🙂 Mara), stated that the freezing of lending threatens survival of banks in the country.

Analysts stated that the government was using blunt tactics to address a long-standing problem with currency. They also added: “Banning lending activity will threaten survival Banks because this will wipeout 20-50% their incomes.”

According to BancABC, the freeze could cause shortages in goods and further price rises.