The Bank of Zambia has raised the statutory reserve ratio by four percentage points bringing it to nine percent in a bid to quell the effects of the exchange rate on inflation.

The increase in the statutory reserve ratio will mean a reduction in the amount of money being held by commercial banks thereby reducing liquidity in the economy.

In a circular dated 9, December 2019 addressed to all heads of commercial banks, BoZ deputy governor Dr Francis Chipimo guided that the adjustment would be effective December 23, 2019.

“The Bank of Zambia wishes to advise all commercial banks that with effect from Monday, December 23 2019, the minimum statutory reserve ratio on both local and foreign currency deposits, including government deposits and Vostro account deposits, will be increased by four percentage points to 9 per cent from the current 5 percent. In terms of compliance, the revised statutory reserve ratio of 9 percent will be effected based on the weekly return of selected assets and liabilities as at Wednesday, December 18, 2019,” the circular stated.

“Furthermore, effective December 9, 2019, commercial banks will be required to comply with statutory reserve requirements on both local and foreign currency liabilities on a daily basis as opposed to the weekly compliance currently in place. The base for the calculation of the reserve requirements will be the weekly return of selected assets and liabilities as at Wednesday December 4, 2019.”

Dr Chipimo further stated that the Central Bank would continue to closely monitor developments in the macroeconomic environment.

“These measures are aimed at restoring and safeguarding stability of the market in order to rein in the adverse impact of the recent exchange rate developments on inflation. The Bank of Zambia will continue to closely monitor developments on inflation. The Bank of Zambia will continue to closely monitor developments in the macroeconomic environment, and stands ready to take appropriate action as and when the need arises,” stated the circular.