Zimbabwe will introduce some Zimbabwe dollar notes and coins in the next two weeks, the latest step towards fully restoring the domestic currency, central bank governor John Mangudya said on Tuesday.

The central bank unexpectedly reintroduced the Zimbabwe dollar on June 24, ending a decade of dollarisation, but the currency has plummeted against the U.S. dollar. Mangudya blamed the depreciation on an increase in money supply by 80% during the first eight months of this year.

Zimbabwe abandoned its own currency in 2009 after it was wrecked by hyperinflation, but three-digit inflation that has eaten into salaries and savings has evoked the dark days of the 2008 hyperinflation under the late Robert Mugabe.

The new money, consisting of 5-dollar notes and 2-dollar coins, will be introduced gradually to avoid driving up inflation, Mangudya said. It will circulate alongside the bond notes and coins introduced in 2016 as a surrogate for U.S. dollars, which the country was then mainly using in lieu of its own currency.

"For a start, we thought of being conservative (in introducing low denomination notes and coins) and we will graduate with time," Mangudya told reporters after a two-day monetary policy committee meeting.

He would not say how much money would be produced.

It was the first meeting of the MPC since finance minister Mthuli Ncube appointed its members last month.

Mangudya said cash in circulation accounted for 4% of total bank deposits, way below demand, and the central bank wanted to gradually increase this to between 10 and 15%.

This shortfall has spurred a black market trade for cash as Zimbabwe grapples with the worst economic crisis in a decade, marked by shortages of foreign exchange, fuel and medicines, inflation and 18-hour daily power cuts.

Hopes that the economy would quickly rebound under President Emmerson Mnangagwa, who took over after Mugabe was deposed in a coup in 2017, have dimmed fast.

The economy will contract by 6.5% this year after a severe drought and power cuts that hit mines and industry, Mangudya said, but fundamentals remained sound and the economy would rebound next year.

He was optimistic that month-on-month inflation would end the year at between 10 and 12%. Zimbabwe stopped publishing annual inflation figures in June but economists examining the official monthly data put the rate at 380% in September.

Mnangagwa, who critics accuse of lacking commitment to political reforms and using his predecessor's heavy-handed tactics to stifle dissent, has pleaded for time and patience to bring the economy back from the "dead". (Reporting by MacDonald Dzirutwe; Editing by Catherine Evans and Giles Elgood)