NANCY MWAPE, Lusaka
THE Bank of Zambia (BoZ) has reduced the monetary policy rate from 12.5 percent to 11 percent following sustained decline of
It has also reduced the statutory reserve ratio from 12.5 percent to 9.5 percent.
BoZ Governor Denny Kalyalya said at a media briefing yesterday that the monetary policy committee noted sustained decline in inflation over the last seven months, firmly anchored in single-digit levels.
“Overall inflation ended the second quarter at 6.8 percent, up from 6.7 percent at the end of the first quarter, but well within the medium-term target of six to eight percent.
“The inflation forecast indicate that it will remain at current levels for the remainder of the year and trend towards the lower bound of the target range of the medium term,” Dr Kalyalya said.
He said following the reduction in the monetary policy rate and statutory reserve ratio in May this year, overnight interbank rate also declined to 12.2 percent at the end of June from 13 percent at the end of March, as liquidity conditions eased.
Dr Kalyalya cited net government spending and BoZ purchases of foreign exchange to build up international reserves as other factors that contributed to easing liquidity conditions.
He said during the second quarter of the year, economic activity picked up, credit to the private sector also registered some growth while lending to Government slowed down.
Dr Kalyalya said although yield rates on government securities and commercial banks’ interest rates declined during the review period, lending rates remained high.
“The Bank of Zambia will continue to closely monitor domestic and external sector developments and stands ready to implement appropriate monetary policy measures to maintain price, financial system stability to support diversification and higher economic growth,” he said.
Dr Kalyalya said changes in the monetary policy will continue to be guided by inflation outcomes and progress in fiscal consolidation.
He said over the medium term, economic growth prospects are expected to improve, with gross domestic product for 2017 and 2018 revised upward to 4.3 percent and 5.1 percent from 3.9 percent and 4.6 percent respectively.
Dr Kalyalya expects growth to emanate from improved agricultural output, increased electricity generation, higher mining output, construction and manufacturing activities.
“However, challenges to growth and financial sectors remain. These include high interest rates, low credit growth, high non-performing loans and structural weaknesses in the financial sector,” he said.