CENTRE for Trade Policy and Development (CTPD) says it expects the Bank of Zambia (BoZ) to maintain its Monetary Policy Rate (MPR) at eight per cent to continue stimulating economic growth.
In a statement ahead of the Monetary Policy Committee (MPC) announcement due this Wednesday, CTPD policy lead-tax justice Ibrahim Kamara called on the MPC to maintain the MPR at eight per cent to not only spur economic growth, but encourage financial sector stability.
The central bank slashed the benchmark policy rate by 125 basis points to 8 per cent from 9.25 per cent in August in a bid to safeguard the country’s financial stability to offset the devastating effects of COVID-19, the second successive rate cut this year and the lowest rate historically.
“As the BoZ MPC is set to announce its Monetary Policy decision for the fourth quarter, the CTPD expectations are very high. This being the first monetary policy decision presided by the new bank of Zambia governor, Mr Christopher Mvunga, it will set the tone on the policy direction he intends to take. CTPD expects the Committee to maintain the MPR at eight per cent. This measure is not only necessary to continue stimulating economic growth but also to allow time to assess the impact of the current rate on economic stimulation and to maintain financial sector stability,” Kamara stated.
“CTPD is cognisant of the economic challenges that could benefit from accommodative Monetary Policy. With the country headed into a recession, growth of the real sector economy could help ease the depth of a recession as well as generate the much-needed revenues by government. The Centre is aware of the business disruptions that COVID-19 has brought and how it has slowed private sector participation. It is, thus, commendable that the BoZ factored this in its previous policy decision to lower policy rate.”
Kamara added that the BoZ should not lose focus on its mandate of price and financial sector stability but instead assess the impact of its previous decision to lower the policy rate.
“BoZ must, however, allow time to assess the impact of its previous decision to lower the policy rate. CTPD also notes that while BoZ has tried to respond to the short-term macro-economic needs on the monetary side, inflation has continued to remain high at 16 per cent for the month of October. We, therefore, urge prudent practices on the part of the fiscal side, which continues to undermine long term growth of the country,” stated Kamara.
“It is important that the Ministry of Finance complements the efforts by the Bank of Zambia by aligning the Bank’s short-term measures with its own long-term measures. It is equally important that the Bank does not lose focus on its mandate of price and financial sector stability. To this effect, CTPD wishes to advise BoZ, to maintain the Monetary Policy rate at eight per cent in order to allow for private sector business participation as well as financial stability.”