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HARARE, July 31 (Reuters) Zimbabwe's central bank devalued its dollar by 60 percent on Monday after announcing it had decided to knock three zeros off all banknotes to help consumers cope with hyperinflation of nearly 1,200 percent.

Governor Gideon Gono also slashed the country's main lending rate by 550 percentage points to 300 percent in a renewed bid to kick-start the ailing economy, which has shrunk by more than a third in a recession which has lasted for eight years.

''Our currency is in trouble. Our people are experiencing incredible hardships and inconveniences associated with too many zeros,'' Gono said in a televised monetary policy review.

''All monetary values ... have been re-based by striking out three zeroes,'' he added.

Gono said that after the removal of three zeros from banknotes -- which takes effect on Tuesday -- the country's interbank exchange rate would be adjusted to 250 Zimbabwe dollars to 1 U.S. dollar.

Based on the currency's old official exchange rate of $1=$Z101,195 after knocking off three zeros the new rate amounts to a 60 percent devaluation, based on IMF methods.

Economists said the devaluation would probably have a limited effect on Zimbabwe's inflation rate -- the highest in the world -- as retail goods had been priced off the previous black market exchange rate, which was already five times the official level.

But it would help consumers who have been forced to carry huge wads of banknotes to buy groceries and other basic goods.

GOAL IS LOWER INFLATION The sharp cut in interest rates -- which followed hefty hikes earlier this year -- was aimed at curbing rapid growth in money supply fuelled by maturing government treasury bills, which would in theory help lower inflation, they said.

This was only seen as likely to succeed if the government managed to reduce its heavy domestic debt burden.

''More than half the budget is going to be financed by domestic borrowing ... he had no choice but to reduce interest rates because the burden would have been unsustainable,'' said Sheunesu Juru, fund manager with asset management firm Zimnat.

Some analysts said this may be possible given a $2.5 billion capital injection which Gono said on Monday the country had managed to attract in the second quarter of this year.

A large chunk or all of the capital inflow may have come from China, which Zimbabwean officials say has pledged to help the country with financial aid.

''I think the redenomination will make life easier for many people, but what's needed is a strong anti-inflation stance in every way that matters -- both fiscal and monetary policy,'' said a London analyst who wished to remain anonymous.

''In the absence of that it is going to be extremely difficult to bring inflation down.'' Gono said Zimbabweans had to phase out old banknotes within three weeks. Zimbabwe's sliding dollar has been officially devalued several times over the past few years, helping to fuel four-digit inflation.

The economy of the southern African country is battling a jobless rate of between 70 and 80 percent along with chronic shortages of food, fuel and foreign currency.

REUTERS SBA BD1839