The Bank of Zambia has hiked the Monetary Policy Rate (MPR) in a bid to contain rising inflationary pressures, which look set to breach the targeted six to eight per cent range.
Speaking during a media briefing in Lusaka, Wednesday, BoZ governor Dr Denny Kalyalya announced that the central bank decided to increase the MPR to 10.25 per cent from 9.75 per cent, representing 50 basis points, for the first time in over a year.
He, however, announced that the Statutory Reserve Ratio (SRR) was left unchanged at five per cent.
The BoZ had previously kept the MPR constant for four successive times since February, 2018.
The MPR is the benchmark lending rate the central bank sets on commercial banks to either increase or decrease interest rates on credit facilities, while the SRR is the proportion of deposits a commercial bank, by law, must keep in cash or place with the central bank.
But Dr Kalyalya explained that the central bank’s Monetary Policy Committee (MPC) had no choice but to increase the MPR due to rising inflationary pressures, which had been exacerbated by the kwacha’s sharp depreciation against major currency convertibles.
The local unit sharply depreciated to K14.00 and K14.05 per dollar by end of day last Friday, for bid and offer respectively, according to the Bank of Zambia, compared to trading at K12.87 and K12.92 a fortnight before that.
“This time around, looking at various elements in the economy, we felt that we needed to make some adjustments. Some of the key factors that we took into account arriving at this decision was that, there has been a build-up in inflationary pressures in the economy, with inflation now being projected to remain above the upper-bound, which is eight per cent,” Dr Kalyalya told journalists at the central bank.
“So, we project that over the coming eight quarters, inflation will be above that bound. This has come about because of heightened volatility in the exchange rate in the kwacha against major foreign currencies, with the potential to further increase inflation if no other action is taken. We see that there has been slow progress towards fiscal consolidation as reflected in the rising domestic arrears.”
He further noted that the BoZ took cognisance of the anticipated slowdown in growth, weak growth in credit to the private sector and the tight financial conditions induced by Zambia’s huge external debt service.
One Response
That’s why I wondered how the rates for dollar reduced drastically today. Anyway let the borrowers borrow no More we need to import cars.