Reduced money in circulation worries BoZ

Bank of Zambia governor Dr Denny Kalyalya speaks to journalist - picture by Tenson Mkhala

High interest rates on loan facilities offered by commercial banks has severely limited access to credit by the private sector as growth contracted by 0.9 per cent, Bank of Zambia (BoZ) data reveals.

According to the latest the BoZ’s Monetary Policy Committee (MPC) statement, commercial banks’ average nominal lending rates, which edged up to 23.6 per cent by end of the fourth quarter of 2018, have constrained access to credit by the private sector.

Data contained in the MPC statement shows that credit growth contracted by 0.9 per cent by the end of the fourth quarter of last year, compared to a growth of 14.3 per cent by September 30, 2018.

BoZ governor Dr Denny Kalyalya explained during the latest Monetary Policy Rate (MPR) announcement in Lusaka, Wednesday, that the rising lending rates have negatively affected credit growth in the local economy during the fourth quarter of 2018 compared to the previous quarter, a situation which has even restricted government’s access to credit on the market.

“Our upshot here is that, high lending rates continue to constrain the private sector’s access to credit. Now, we see that credit growth [grew] by 1.3 per cent, which was down from 9.9 per cent [in the third quarter]; this is the contraction we are talking about,” Dr Kalyalya said.

“If we step out of the government side of things, we see that credit contracted by 0.9 per cent [compared to a growth of 14.3 per cent in the previous quarter]. This, when you compare to 14.3 per cent, for us, as a Monetary Policy Committee, this is a concern and that’s one of the reason why we felt that the [Monetary] Policy Rate shouldn’t be adjusted upwards.”

He revealed the extent of tightened liquidity on the local financial market as illustrated by government’s limited access to credit during the last quarter of 2018.

“Even to government, you see, credit fell to 3.3 per cent [in the fourth quarter from 6.2 per cent in the preceding quarter] because liquidity conditions tightened almost by half! Now, when you look at the private sector directly; the contraction was 4.6 per cent from an increase of 19.2 per cent. That’s a huge decline, which is a concern. This continued sluggish growth in credit to private enterprises remains a challenge to supporting strong private sector-led economic activity,” said Dr Kalyalya.

BoZ data equally shows that growth in credit to households in the country fell to 2.3 per cent by the end of the last quarter of 2018 compared to 7.5 per cent during the third quarter up to September 30, representing almost a 70 per cent decline.

The central bank maintained the MPR at 9.75 per cent, while also keeping the Statutory Reserve Ratio (SRR) at five per cent, for the fourth successive time since last February in a bid to induce lower interest rates and continue supporting economic growth.

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