‘BoZ action could lead to reduction in interest rates’

BOZ building.

SOME local research institutes say the interventions undertaken by the Bank of Zambia (BoZ) is anticipated to contribute to a further reduction in interest rates, hovering around 25 percent and 38 percent.

Last week, the central bank reduced the policy rate from 12.5 percent to 11 percent and further stated that statutory reserve ratios have also been reduced from 12.5 percent to 9.5 percent.

Both Zambia Institute for Policy Analysis (ZIPAR) and Policy Monitoring and Research Centre (PMRC) noted that the reduction will have a positive impact on the economy.
ZIPAR senior research fellow Caeser Cheelo said the recent policy decision to further relax monetary policy through various revisions is positive.
“With general improvements in the economy, particularly in mining and construction, more affordable liquidity or credit to the private sector can be expected.
“I am cautiously optimistic the monetary policy stance will spur private sector lending, bolster productivity, and encourage real gross domestic growth, but the downside risks on the fiscal side cannot be ignored,” Mr Cheelo said in an emailed response last week.
He said the cautious relaxing of monetary policy has also stabilised the Kwacha.
Mr Cheelo also said the currency appreciation and single-digit inflation are likely to inspire the private sector and foreign investors to gain confidence as well as increase their participation in the economy at predictable and more affordable prices.
Currently, the Kwacha is trading in the range of K8.90 while inflation is at 6.6 percent.
And in a statement, PMRC executive director Bernadette Deka said the reduction in the monetary policy rate has the potential to change short-term interest rates and influence a level of economic growth.
Ms Deka said although a low policy rate signifies economic growth, it may lead to slight but minimal increases in inflation in some cases.
“It is hoped that continued implementation of monetary policy by the BoZ will eventually reduce the prevailing high real lending rates, increase growth in credit to the private sector, increase economic growth and further stabilise the financial sector,” she said.


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