Chibamba Kanyama has said the Bank of Zambia’s decision to retain the Monetary Policy Rate at 9.75 per cent in November is the best decision meant to encourage economic growth amidst rising inflationary pressures.
And Kanyama, an economic analyst, says an increase in the Monetary Policy Rate (MPR) would have hurt the agriculture sector further as farmers are currently seeking funding from financial institutions.
The Bank of Zambia’s Monetary Policy Committee last week announced that it had decided to maintain the policy rate at 9.75 per cent.
In an interview with News Diggers in Lusaka, Saturday, Kanyama said maintaining the MPR this month was the best decision, saying it would help the country recover further from an economic crisis of two years ago.
“The decision by the Bank of Zambia to maintain the Monetary Policy Rate is well calculated to maintain momentum of investment at a time when any upward adjustment would stall investments and economic growth. Remember that the economy has not fully recovered from the 2015/16 economic crisis
brought about by low copper prices, electricity outages, low food production and expenditures related to the elections. It takes a long time for an economy that once enjoyed an average growth rate of 6.9 per cent over ten years to pick up from the current low rate of growth without improving the liquidity position of the country,” Kanyama said.
“A higher policy rate has a direct impact on commercial lending rates on two fronts: first, the policy rate determines the level at which government borrows from the market through auctions of government securities. The higher the rate, the more attracted commercial banks get to invest resources in government paper away from the open market. This is what we call crowding out the private sector in the credit market. The second implication is that the commercial banks will raise interest rates. This is what the Bank wants to avoid. The market had expected a raise in the monetary policy rate given the current rate of inflation. However, the Bank of Zambia chose to maintain the current momentum of encouraging economic activity. The expectation is that higher investment due to reasonably stable interest rates will induce production and cure inflation.”
He further said with the El-Nino weather conditions expected in Zambia, an increase in the MPR during the planting season would have had an immediate impact on farmers who had already started borrowing from banks in readiness for the season.
“The timing is also perfect – you do not raise a policy rate during the planting season when farmers are already negotiating funding options with commercial banks at the known rate. This would have had an immediate impact on agricultural investments. It is an El Nino year when we ought to have farmers capitalise on a shortened rainy season. If it was not for high inflation levels, the Bank of Zambia would actually have lowered the policy rate further to improve market liquidity, but the regulator has been caught in a Catch 22 situation. In short, the decision is the best under the circumstances and I encourage the market to fully leverage the opportunity,” said Kanyama.