Bankers project further drop in interest rates


INTEREST rates, which have marginally reduced, are in the medium term expected to drop further as the expensive long-dated deposits contracted by commercial banks mature, the Bankers’ Association of Zambia (BAZ) says.

BAZ chief executive officer Leonard Mwanza explained that the first steps in the reduction of interest rates have been made as demonstrated by the marginal drop, averaging 28 percent, with expectations of a further drop in the medium term due to factors such as the decline in government security rates.
Treasury bills have dropped from the highs of 22 percent to about 16 percent with short-term maturity rates being around 14 percent.
“Banks had contracted highly expensive deposits, which were long-dated, so the wash-effect has not started coming into play.  So as those maturities come into the market, [deposits] will be contracted at new and lower rates, then we will start seeing banks reacting to the new reduced cost of funds,” he said.
Mr Mwanza also said the continued drop in the monetary policy will contribute to the reduction of interest rates.
The central bank is this Wednesday expected to announce the monetary policy rate.
In February, the Bank of Zambia (BoZ) reduced the monetary policy rate from 15.5 percent to 14 percent while the statutory reserve ratio reduced to 15.5 percent from 18 percent.
“We are looking forward to Wednesday’s policy rate announcement by the BoZ. The current economic fundamentals are positive giving us confidence that the central bank will further scale down the policy rate, which will be good for the industry,” he said.
He also expressed optimism that the statutory reserve ratio, which is the required security deposit made by commercial banks to the central bank, will reduce.
On the economic fundamentals, Mr Mwanza said the continued Kwacha stability, low inflation rate and the projected bumper harvest will go a long way in the economic recovery of the country.


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