By BUUMBA CHIMBULU
THE Bank of Zambia (BoZ) should not make any revisions to the monetary policy position and statutory reserves as doing so may spike inflation at a faster rate or add liquidity pressure in the financial market.
The Monetary Policy Committee (MPC) had in its first meeting on February 17, this year hiked rates 50 basis points to 8.5 percent which marked the genesis of the rate hiking cycle pressured by an eminent exchange rate rout.
The MPC is today once again set to announce the policy rate for the second quarter of this year.
Some stakeholders such as Caesar Cheelo, a local economist at Equilibria Consulting Limited have predicted that the BoZ would not make any adjustments to the policy rate.
Mr Cheelo urged the BoZ not to revise both the policy rate and the statutory reserves.
He explained in an interview that reducing upwards stimulate money demand for transactions at a faster rate, thereby increasing inflation rate while increasing it may add more pressure on the banking industry.
April inflation slowed 0.1 percent to 22.7 percent, signalling peaking consumer price index.
“Reducing the policy rate and lowering the reserve requirement, may stimulate money demand for transactions at a faster rate than the rate of agriculture, food production and supply responses, so that the increased money demand causes upward inflationary pressures.
“From a monetary policy point of view, food shortages or low food production mean that liquidity in the agriculture sector is in low supply. Thus, tightening monetary conditions (by increasing the Policy rate and reserve requirements) may constrain the agriculture sector further and cause the shortages and inflation to get worse,” Mr Cheelo said.
He indicated that inflation was high, but stabilising at those high levels 22.7 percent in April compared to 22.8 percent in March meant that there was a food supply shortage, most likely due to low production during Covid-19.
Mr Cheelo said from a monetary policy point of view, food shortages or low food production meant that credit in the agriculture sector was in low supply.
And the Kwacha Arbitrageur Magazine indicated that: “we remain of the view that there’s a 90 percent likelihood that the policy rate will remain at 8.5 percent while a hike of 50 basis points could still be effected with 10 percent probability.”