The move caught the market unawares as expectations were that the Reserve Bank would only give a clear indication on the direction of interest rates in the new year, guided by inflation figures for December.
Year-on-year inflation fell significantly during the month of November to 149.3 percent, from 209.1 percent in October. This surpassed central bank governor Gideon Gono's revised target of between 150 percent and 160 percent by December, which was shifted from an initial target of 200 percent by year-end.
The market anticipates inflation to settle at around 115 percent in December.
The central bank on Monday adjusted overnight accommodation rates - a money market instrument that allows domestic banks to cover unexpected shortfalls in their daily cash requirements - to 110 percent for secured lending and 120 percent for unsecured lending, from previous levels of 135 percent and 145 percent for secured and unsecured lending respectively.
Treasury Bills (TBs) and other prescribed assets form the underlying security for borrowing through the central bank's overnight accommodation window, which penalises borrowers without such security.
"My view is that all other rates will fall in line with the decline in the overnight accommodation rates," said Nyika Chidemhe, a market analyst with Highveld Financial Services. "I don't expect the next 91-day TB (Treasury Bill) rate to be above the 110 percent level."
Market conditions remained tight as the central bank reinforced its commitment to contain money supply growth to support its fight against inflation.
The money market opened the week short to the tune of $641 billion, from reduced levels of $240.5 billion last week that had been precipitated by an injection of over $500 billion into the market through maturing TBs.
The RBZ had last week intervened to quell liquidity in the market through issuance of TBs, with as many as three tenders being held on the market in a single day.
But its operations this week found little favour on the market, with one of the two tenders held on Monday finding no participant, while the other tender amounting to $200 billion attracted a single bid to the tune of $5 billion.
Indications were that players stayed away because of the market shortages and disturbances in the banking sector originating from the closure of CFX Bank, placed under curatorship by the Reserve Bank to save it from a run on deposits after evidence of a liquidity crunch surfaced at the institution.
Market forecasts indicated that shortages would remain perched at over $600 billion throughout the week.
"The Reserve Bank is working with a targeted market shortage to arrest money supply growth," said Chidemhe.
By keeping the market squeezed, the Reserve Bank intends to curtail money supply growth emanating from credit expansion, one of the key drivers of high inflation levels.
Gono said in his monetary policy review in October that successful reduction of inflation to low and stable levels demanded that over the medium to long term, the country's money supply aggregates are maintained at levels that are consistent with real economic growth.
Money supply growth, which reached a peak of 500 percent in January this year, has been gradually declining, with the RBZ expecting it to come down towards the zero level in December 2006.

Recent statistics from the Zimbabwe Tobacco Association (ZTA) indicate that tobacco exports’ contribution to the country’s total export basket plunged from 35 percent in 2001 to a mere 20 percent last season as the golden leaf continues to lose its lustre.
According to the ZTA, foreign currency earnings from the sale of tobacco, once the country’s principal foreign currency earning commodity, had fallen from US$584 million in 2001 to US$240 million in 2004.
The tonnage of exported tobacco has also declined drastically from 198 219 tonnes in 2001 to 80 000 tonnes in 2004.
Since 1990, tobacco’s contribution to national export earnings has been averaging 30 percent. Zimbabwe earned US$376 million from tobacco exports in 1990, netted a record US$676 million in 1996, a figure which has fallen to US$240 million in 2004, ZTA said.
According to the ZTA, the number of large-scale commercial farmers has drastically shrunk from 1 878 in 1998 to just 700 farmers in 2004.
The hectarage under tobacco in the large-scale farming sector has also fallen from a peak of 86 937 hectares in 1997 to 25 000 hectares in 2004.
Shortages of inputs, under-capitalisation and the often chaotic land reform have been blamed for the decline in production of the erstwhile principal foreign currency-earning commodity.
The drastic fall in output, from a peak of over 200 million kilograms in 2000 to 65 million kilograms in 2004, is despite a sharp rise in the number of new farmers in the lucrative farming business.
In 1990, Zimbabwe had 194 small-scale tobacco farmers utilising only 494 hectares, the ZTA said.
The number of small-scale tobacco growers has since shot up to 12 000 in 2004 utilising 16 000 hectares.
But despite the increase in the number of farmers and the hectarage, the small scale tobacco growing sector produced a paltry 12 000 tonnes of tobacco in 2004.
The average yield per hectare has remained stagnant at around 1.40 tonnes.
Analysts noted that most small-scale farmers are sitting on farms with potential to produce more than 100 hectares of the tobacco crop.
Production costs have also skyrocketed, putting paid to government’s projections of lifting tobacco output to 160 million from the current 65 million kilograms.

There is consensus, however, that 2003 was a veritable annus horribilis.
By the previous year’s standards, 2004 needed to be a specially horrible year for it to fit into the continuum.
It was not. At least on most counts.
The year began pretty much on the same note that 2003 had ended — galloping inflation that relentlessly decimated earnings, an exchange rate in free-fall, no end to the political standoff that has polarised the country, a high HIV infection rate, soaring unemployment, deteriorating social services, food shortages and general disillusionment stared Zimbabweans in the face.
January, and if anything was supposed to change, it would surely be for the worse.
Come year-end, the government, which has forecast a return to economic growth in 2005, by as much as five percent, has struck a triumphant chord and taken on a new mantra — economic turnaround.
While independent projections by institutions such as the International Monetary Fund (IMF) have backed projections of positive economic growth for the first time since 1999, there is a difference in the magnitude of the growth (the IMF has forecast 1.8 percent gross domestic product growth in 2005). There is even less agreement when it comes to the household level, where the gins of the “turnaround” will certainly take longer to be felt.
With activity on the political front taking a back seat as an unprecedented financial sector crisis raged on during the year, the talking point for 2004 will be the bank closures that put an end to a golden period for locally owned financial institutions.
A tighter monetary policy announced by Reserve Bank of Zimbabwe (RBZ) governor Gideon Gono in December 2003, which brought about a stringent accommodation policy, among other interventions, saw many financial institutions going into tailspin at the height of an interest rate spike when rates went as high as 900 percent.
As the year ends, some institutions that reported stratospheric profits in 2003 have run into problems and been placed under the management of curators.
To date, a total of nine banking institutions — Trust Bank Corporation, Royal Bank, Intermarket Discount House, Intermarket Building Society, Intermarket Banking Corporation, Barbican Bank, Time Bank, CFX Merchant Bank and CFX Bank — have been placed under curatorship, while Rapid Discount House has gone into provisional liquidation.
More than 70 asset management firms, which had sprouted in the past two years, were culled as the RBZ went on a crusade to clean up the financial sector. ENG Capital, which had grown exponentially in stature and assets during the period, was the high-profile casualty.
The upheaval in the sector also brought with it an unprecedented exodus of business executives — mainly bankers — as deep-seated corruption was exposed.
A number of business executives, including NMB’s Julius Makoni, James Mushore, Francis Zimuto and Otto Chekeche, Intermarket’s Nicholas Vingirai, Mutumwa Mawere and Barbican’s Mthuli Ncube left the country in the most inauspicious of circumstances, while James Makamba, Philip Chiyangwa, Jane Mutasa and Finance Minister Chris Kuruneri were among the notables arrested on corruption charges.
There were spectacular corporate coups, which saw the likes of William Nyemba, Chris Goromonzi and Nyevero Hlupo leave their beloved Trust Holdings Limited, while Norman Sachikonye left First Mutual Limited during the course of the year.
Away from the corporate upheavals, the year saw the dollar weakening further against major currencies, following the introduction of controlled foreign currency auctions by the RBZ on January 12.
The inaugural auction saw the dollar trading at $4 196 against the United States dollar, a departure from the pegged $824 to the greenback, which the government had stuck to throughout 2003.
As the year ends, the exchange rate has moved to $6 200 against the United States dollar.
Although it initially managed to dampen activity on the parallel market for hard currencies, the auction system could not meet mounting demand throughout the year, giving opportunity for a resurgence of the black market, where rates have gone up to as much as $8 500 to the greenback.
On the interest rate front, rates went down from the peak of last year’s spike, which spilled into 2004. Banks have largely reduced their minimum lending rates to below 200 percent, from an average 450 percent at the beginning of the year, although the RBZ insists on further cuts in line with declining inflation.
The year also saw a significant decline in inflation, from an all-time high of 622.8 percent recorded in January to 149.3 percent by November, way below the RBZ targets.
According to official statistics, the gross domestic product, which has been shrinking since 2000, declined further by about 25 percent this year, although the government has forecast a return to positive growth in 2005.
There were less spectacular developments on the political scene, although the country’s major political parties — the ruling ZANU PF and the Movement for Democratic Change (MDC) — came as close as they have ever come to a settlement that would have resolved the political impasse that has heightened tension in the country.
The two parties, at the behest of South Africa’s President Thabo Mbeki, had agreed on minimal constitutional changes that would have paved way for a credible electoral process ahead of the March 2005 parliamentary vote.
The changes would, among other provisos, have seen a return to a bicameral Parliament, the creation of a truly independent electoral commission and the abolition of parliamentary appointments by the President.
MDC president Morgan Tsvangirai has accused ZANU PF of chickening out on the proposals it had earlier supported to pursue a parochial legislative route by virtue of its parliamentary superiority.
Mystery continues to shroud the reasons behind the collapse of the constitutional proposals.
The MDC’s participation in next year’s polls remains uncertain as the party has suspended participation in all elections until the government fully implements all the provisions of the Southern African Development Community guidelines on democratic elections which Zimbabwe and other regional states agreed to at the Mauritius summit.
The guidelines provide for the creation of independent electoral structures and equal access to public media, which the MDC contends are non-existent in Zimbabwe at the moment.
All this makes for an uncertain start to 2005.

CHRA advocacy and information officer Jameson Gadzirai told The Financial Gazette the pressure group was applying for an injunction against Chombo over the imposition of the ZANU PF-aligned commission headed by political turncoat Sekesai Makwavarara.
The CHRA is arguing that Chombo violated Section 80 of the Urban Councils Act when he imposed the ruling party-dominated commission.
"We have already filed the papers with our legal counsel. The counsel is hopeful that we have a case against the minister," Gadzirai said.
Under Section 8, the minister may appoint a commission if at any time there are no councillors for a council area or all the councillors have been suspended or imprisoned or are otherwise unable to exercise all or some of their functions.
However, the opposition Movement for Democratic Change-dominated municipality was operating with eight councillors following the suspension of 37 others on trumped-up charges of insubordination and incompetence by Cho-mbo.
Some of the suspended and dismissed councilors' cases are still pending in the courts.
CHRA is arguing that a commission's tenure of office is stipulated for six months after which succeeding general elections are held and not the two years imposed by Chombo.
If the six-month period expires without such elections, the minister may reappoint the commission or the commission will push for the holding of an election.
"While the minister might have exercised his unlimited powers to appoint the commission, according to the Act, its mandate is to facilitate for the holding of new elections. The fact that some of the councillors' cases are still pending in courts is an indication that there is an effort by them to exercise council duty," Gadzirai said.

While the MDC might have succeeded in exerting pressure on ZANU PF, which has been dithering on instituting electoral reforms agreed by regional heads of state and government in Mauritius this year, there is concern that the main opposition party has caused confusion among its electorate that may cost the party dearly.
And besides, the lack of consensus on the MDC’s participation in the crucial March 2005 elections could be another expose` about the confusion and deep-seated divisions within the party, accused by President Robert Mugabe of working with imperialist forces to topple his government.
Party insiders and political analysts who spoke to The Financial Gazette this week were unanimous that it would be an ill-advised strategy that may haunt the MDC and cost it victory in next year’s elections if the party is to go into Christmas and the New Year without arriving at a final political decision.
They said the dilly-dallying in announcing a clear-cut position pointed to sharp divisions within the MDC’s national executive council, which met at the weekend but failed to arrive at a final stance.
MDC leader Morgan Tsvangirai, who recently returned from a 25-nation diplomatic sojourn, is said to be in a quandary following immense pressure from regional heads of state to contest the polls, coming nearly five years after the last elections where the then 18-month old opposition party nearly upset ZANU PF, grabbing almost half of the 120 contested seats.
Analysts said the indecision could play into the hands of President Mugabe’s ruling ZANU PF, which is gearing to overwhelmingly win the polls in a bid to gain some measure of legitimacy.
Paul Themba Nyathi, the MDC’s spokesman, said in a statement early this week the party would decide in early January whether to contest the elections set for March.
Commenting on the outcome of the gathering of the party‘s national executive council meeting, Nyathi said it had been resolved that the political climate was still not conducive to the staging of free and fair polls.
“We reviewed the prevailing political situation and recognised that the electoral reforms so far implemented are inadequate and do not comply fully with the SADC (Southern African Development Community) principles and guidelines on the conduct of democratic elections,” said Nyathi.
The party also agreed to lobby SADC leaders to pressure President Mugabe to level the playing field to allow the MDC to hold political meetings, have access to the public media, repeal repressive security and media laws, especially the Public Order and Security Act and the Access to Information and Protection of Privacy Act.
Lovemore Madhuku, chairman of the National Constitutional Assembly, a member of the Broad Alliance together with the MDC, has already told Tsvangirai to stay away from the defective polls, citing the closure of democratic space by ZANU PF.
“The MDC must not participate in the elections. We want a free and fair playing field. We want a free media,” said Madhuku.
Basing free and fair elections on the SADC Mauritius Protocol signed by heads of state, including President Mugabe, the MDC has dismissed the reforms parachuted through Parliament in recent weeks as cosmetic.
Crisis in Zimbabwe Coalition, another member of the Broad Alliance, in an analysis of the implications of the electoral reforms, dismissed the government-inspired reforms as “applying lipstick on yet another frog”.
The reduction of urban seats by the Delimitation Commission is also said to have dealt the MDC a heavy blow as the party considered the cities and towns its strongholds.

In his 17th state of the nation address last week, the 80-year-old Zimbabwean leader, who consolidated his grip on the party at the just ended ZANU PF People’s National Congress, decried violence, which the main opposition Movement for Democratic Change (MDC) allege had been used to cow voters.
The MDC, which almost handed ZANU PF a shock defeat in the disputed 2000 parliamentary and the 2002 presidential elections, is still fighting the legitimacy of some of the poll results in the courts.
“I want to reiterate government’s determination that this impending poll should not be marred by incidents of violence from whatever quarter,” thundered a confident President Mugabe in a live broadcast aired on both radio and television.
President Mugabe’s sentiments come at a time when the Zimba-bwe Human Rights Non-Governmental Organisation Forum has already issued a disheartening report pointing to an increase in inter-party skirmishes.
There were 44 cases of assault and eight of kidnapping in August this year, up from 12 and one respectively in July, according to the report.
Some analysts said the ruling party, accused by the MDC of stealing the 2000 and 2002 ballots due to the excessive use of violence, was brandishing the “no violence” card for convenience purposes only.
They said President Mugabe, who has had a rough year in office after the 2000 and 2002 polls touched off by the crisis of confidence, was desperate to gain some measure of legitimacy especially in the international community.
Ever since the disputed elections, Zimbabwe has been hit by targeted sanctions aimed at President Mugabe and his close lieutenants.
At his party’s national congress, President Mugabe admitted that the sanctions were wreaking havoc in the economy and appealed to British Prime Minister Tony Blair to convince other European Union leaders to unconditionally lift them.
Zimbabwe, which is frantically trying to engage the International Monetary Fund to lift the suspension slapped on the country in 1999, was also suspended from the Commonwealth, before the country’s leadership opted for the exits.
“The situation dema-nds this kind of exhortation from President Mugabe. ZANU PF is secure and confident of winning next year without violence,” said Eld-red Masunungure, a University of Zimbabwe political science lecturer.
President Mugabe’s ruling ZANU PF has anchored its election campaign on the anti-graft crusade that has claimed the scalps of several high-ranking businessmen and politicians, while forcing over a dozen others to flee the country.
Despite the chaos that accompanied the controversial land reform, the ruling party has also made the programme, which has benefited nearly 200 000 families, a rallying point in its campaign.
Heneri Dzinotyiweyi, another political commentator, said although President Mugabe’s message against political violence was important in that incidents of violence might be fewer compared to past polls, the electorate was still traumatised by the previous events.
He said President Mugabe’s plea to the electorate confirmed what most people had always suspected — that politicians used their respective supporters as tools for violence.
“Nonetheless, the message is important coming from the leadership of ZANU PF. We hope his followers take heed,” said Dzinotyiweyi.
“But there is no doubt in my mind that the message is a result of confidence on the part of President Mugabe and his ruling party.
“There might be no violence for now, but there are still other fundamental issues on the ground that were not addressed in the past five years. There is still tension. People are very unhappy with the events of the past elections.”