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Policy rate reduction pushes K10bn rate downwards

The cutting of the interest rates’ benchmark by the Bank of Zambia (BoZ) has simultaneously re-priced the K10 billion stimulus package facility to 10.25 percent from 12.5 percent.
The BoZ on Wednesday cut the Monetary Policy Rate by an aggressive 225 basis points to 9.25 percent from the previous 11.5 percent, levels last seen in 2012.
Zambia joins other central banks such as the Bank of Ghana, Bank of Kenya, Central Bank of Nigeria, Reserve Bank of South Africa and Central Bank of Mauritius in a rate decision through the Covid-19 period that has eroded growth momentum.
The 225 basis points rate cut eases the repayment burden for loan payments for borrowers while simultaneously re-pricing the central stimulus package to 10.25 percent from 12.5 percent, says Mutisunge Zulu, a Financial Analyst.
Mr Zulu who had earlier predicted that the BoZ would cut rates to nine percent, said this reflected the growth prioritisation skew of the Central Bank at the expense of other macroeconomics.
“With rising non-performing loans at 10.3 percent against the prudential limit of 10 percent, the Central Bank’s priority is clearly growth in a suppressed environment,” he said in an interview.
Mr Zulu, also serves as National Secretary for the Economics Association of Zambia (EAZ), indicated that rate cut signalled the Central Bank’s commitment to spurring growth in economic hardship to reinforce the April stimulus measures.
He observed that despite having little scope for expansionary monetary policy, BoZ exceptionally intervened in a stimulus package priced at 100 basis points above benchmark interest rate (12.5 percent then).
This, he explained, was done by providing a credit life line to commercial banks in a three to five years K10 billion Medium Term Emergency Refinance Facility while relaxing provisioning and capital requirements.
“Firstly, it is about a dry point of construction that the stimulus is inflationary and will not support the exchange rate because the more liquidity the system has, the more purchasing power and demand for dollars for import purposes as the economy kick starts.
“The Monetary Policy Committee is alive to inflation risks and the currency vulnerability which the BoZ will highly likely address through open money operations,” he said.
Monetary and the Fiscal policy, he said, remained dislocated but for once the two had common ground, a social cause, in a disease pandemic era, which was to prevent the economy from receding sharply.


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