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State effects 18% reserve ratio

KALYALYA

CYNTHIA MWALE, Lusaka
THE Bank of Zambia (BoZ) is today expected to implement the four percent upward adjustment to the statutory reserve ratio (SRR) from 14 percent to cushion the depreciation of the Kwacha.
This follows President Lungu’s recent directive to raise the SRR, which is the central bank regulation that sets the minimal fraction of customers’ deposits that each commercial bank must hold as reserve to 18 percent.
In his inaugural media briefing recently, BoZ governor Denny Kalyalya said the Kwacha dropped by 19 percent to above K7.50 levels due to the falling copper price on the international market coupled with the strengthened United States (US) dollar against major tradable currencies as a result of fiscal intervention by the Federal Reserve.
Dr Kalyalya said the local currency is expected to be boosted once the regulation is effected in the short-term but also called for increased export products to stabilise the Kwacha.
Data from the Central Statistical Office (CSO) has shown that Zambia has for the two consecutive months recorded an increase in trade deficit, where a country is importing more than it is exporting in value terms.
In January, the country registered K68.4 million trade deficit and a K107.3 million in February, according to CSO data.
While most stakeholders have welcomed the move in that the possible effects of increasing the ratio is that banks are likely to compensate for the increased non-interest bearing deposits at the central bank by growing lending rates on their available funds, the development also has its woes in the long-term.
In the long term, the increase in SRR is anticipated to result in the high cost of borrowing hence the need to increase supply of foreign exchange through exports and surpluses on the balance of payment, which is the method countries use to monitor all international monetary transactions at a specific period of time to mitigate the Kwacha downward trend.




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