ECONOMIC activities are expected to escalate following the Bank of Zambia’s (BoZ) reduction of the monetary policy rate
from 12.5 percent to 11 percent following sustained decline of inflation.
Banks have been using benchmark interest rates since 2012.
The Bank of Zambia says although yield rates on Government securities and commercial banks’ interest rates declined during the review period, lending rates remained high.
The reduction of the monetary policy entails that there is going to be more money in circulation because banks will have more cash to lend.
This ability to lend means that banks will increase resources for uptake by small and medium enterprises to boost their businesses.
With banks expected to reduce interest rates, clients should have an improved ability to borrow for investment or re-investment.
Currently, interest rates are hovering around 25.5 percent and have stifled the spending power of corporates, SMEs and individuals.
The reduction in interest rates will translate into corporates, SMEs and individuals’ monthly repayment instalments going down.
This will give borrowers a breather and increase their spending power.
It will also increase borrowers’ threshold to enable them get more money to finance more projects since banks will have more funds available to lend out at lower interest rates.
Understandably, the reduction is reduction, and many would have loved it to be more, but any improvement is certainly better than none or an increase.
That is why BoZ governor Denny Kalyalya expects growth to emanate from improved agricultural output, increased electricity generation, higher mining output, construction and manufacturing activities.
These activities outlined by Dr Kalyalya will also have spill-over effects in the economy.
Increased agricultural output, increased electricity generation, higher mining output and manufacturing activities are the cornerstone of our economy.
Sustaining these economic activities will take the country closer to attaining the prosperous middle-income status Zambia aspires.
Zambia has 13 years in which to attain the status of being a prosperous middle-income country, an ambitious self-determined target.
And various players in the economy have roles to play in which the central bank is the catalyst.
BoZ has played its part by reducing the statutory reserve ratio from 12.5 percent to 9.5 percent.
It is good that the BoZ will continue to closely monitor domestic and external sector developments.
BoZ has pledged to stand ready to implement appropriate monetary policy measures to maintain price, financial system stability to support diversification and higher economic growth.
Changes in the monetary policy will continue to be guided by inflation outcomes and progress in fiscal consolidation.
We expect enhanced economic activities to contribute to employment creation and increase of exports to bring in the much-needed foreign exchange.
Exporters should take advantage of the reduced interest rates to boost their businesses and redress the current trade imbalance in which the country is importing more and exporting less.
Manufacturers, too, should use the reduced interest rates and the bullish Kwacha to produce more goods.
Let us take advantage of the prevailing economic fundamentals to grow our economy.