ECONOMIST Chibamba Kanyama has commended the Bank of Zambia for maintaining the monetary policy rate at 9%, saying any adjustment, either upward or downward, would have induced some level of uncertainty.
In an interview, Thursday, Kanyama said the current monetary policy rate had proved to be working well.
“There is a phrase ‘if it ain’t broken, don’t fix it’. So at the moment, the policy rate has been working. The goals of the policy rate has been to bring down the rate of inflation which is somewhat working now. And the danger of adjusting it either upwards or downwards would be inducing another level of uncertainty which we don’t want to bring in. If you reduce it again you are negatively impacting on inflation rate. In other words, the rate of inflation will start accelerating because you are pumping money back into the system,” he said.
“So the central bank felt they can’t do it now, it is already working that way, maintain it where it is. And increasing the monetary policy rate will be in conflict with the other objectives because the bigger picture of everything that we are doing is economic growth.”
Kanyama said any increase in the monetary policy rate would have suffocated credit.
“We should understand that monetary policy rate is not the main thing, it is simply an instrument used to stabilise price levels. It is an instrument that is there to manage price levels and to impact on supply and demand. So if they were to increase it at this particular time, it was going to suffocate credit which we don’t want to see because once you suffocate credit, you are now working against yourself. You are limiting the level of capital commitments. Banks will be lending at a higher interest rate and what do you see is low investment so at the end of the year, your projected growth rate is not achieved,” he said.
“So the central bank is keeping its eyes on both which I believe is the right thing. You keeping your eye on stabilising the rate of inflation to bring it low to single digit at the same time you want to impact on the exchange rate because that is an indirect way of affecting exchange rate. But the bigger picture of it all is that you don’t want to suffocate credit.”
He said the only potential threat on the monetary policy rate was the prices of fuel, if they continued to rise.
“So the only thing which may threaten, like I said before, the only thing that may induce monetary policy rate to be up to whatever is the fuel prices, if they continue raising. That may be the only threat so far. But we know we can leave it there and I think that was a prudent decision and I am proud that the central bank is really keeping its eyes on the ball. But it is also supplemented by fiscal discipline because monetary policy it only works in the short term and the Ministry of Finance is the one which should leverage what is happening now by continued fiscal discipline and encourage production so that we can continue to see growth. So with this trend now I am very positive Zambia will begin to register a positive growth rate as we continue in the year,” said Kanyama.
“So where it is now appears they have modelled it and it appears it is working okay. ‘If it ain’t broken’, like they say, ‘don’t fix it’. So it is okay right now, maintain it at the same level and they should continue monitoring because there are other variables coming in. We are having the supply of food which has a higher weighting on the inflation basket. But this time, the food is on the market so the food supply are supplementing the monetary policy rate.”