Policy rate to reduce cost of funding for commercial banks

Sat, 25 Feb 2017 11:30:11 +0000

THE reduction in the monetary policy rate by the Central Bank from 15.5 percent to 14 percent will set the pace in reducing the cost of funding for Commercial Banks, says the Bankers Association of Zambia (BAZ).

Monetary policy consists of the actions of a central bank, currency board or other regulatory committee that determine the size and rate of growth of the money supply, which in turn affects interest rates.

According to BAZ public relations officer Mirriam Zimba, the development would set the pace in reducing the cost of funding for Commercial Banks in view of the additional liquidity that had been pushed back into circulation.

“BAZ welcomes the decision by the Central Bank through the Monetary Policy Committee, of unwinding liquidity through the reduction of the Statutory Reserve Ratio from 18 percent to 15.5 percent as well as the reduction of the monetary policy rate from 15.5 percent to 14 percent,” she said.

Ms Zimba explained that the measures were a continuation of the quantitative easing measures which the Central Bank commenced in November, 2016 which had improved market liquidity.

She noted that BAZ looked forward to the reduction of lending rates by Commercial Banks in tandem with the monetary policy decisions following positive developments in the economy such as the rebound of copper prices and drop in inflation rate to a single digit.

Ms Zimba said the association was also positive that the Government would execute the 2017 National Budget within its resource envelope as it implemented its fiscal consolidation measures.

She explained that these measures with the announced monetary policy measures would work towards reducing the risk free rates on Government Bonds and Treasury Bills, which had an overall impact on the lending rates by Commercial Banks.

She said with these measures put in place by the Central Bank, Commercial Banks would now start unwinding interest rates and scale up credit extension to support productive sectors of the economy.

“With copper prices on the rebound, inflation rate dropping to 7.0 percent, the agriculture sector is expected to have a good harvest as well as the stability of the Kwacha in the past one year,” she said.

Ms Zimba said BAZ was now looking forward to seeing a reduction in lending rates by Commercial Banks in tandem with the monetary policy decisions.