Sat, 20 May 2017 10:49:34 +0000
By BUUMBA CHIMBULU
THE reduction of the lending rate benchmark by 150 basis points will open up opportunities for businesses to invest more aggressively as they will be borrowing on a medium-term foundation, the Private Sector Development Association (PSDA) has observed.
The central bank this week reduced its monetary policy rate to 12.5 percent from the previous 14 percent, representing a 150 basis points.
It cited lower inflation rate and subdued economic growth as one of the parameters taken into account.
It also reduced the statutory reserve ration by 300 points to 12.5 percent from 15.5 percent.
And PSDA chairperson, Yusuf Dodia, observed that the private sector now had a chance to invest aggressively in their businesses.
“This development opens up opportunities to invest more aggressively, but as I said businesses will move from short-term to medium-term borrowing which means they will begin to be productive as opposed to trade,” he said.
“The short-term borrowing which the private sector has been doing is mainly to buy goods and sell, but with the drop in policy rate, the private sector can invest in industry and we hope to continue seeing this trend moving in this direction,” he said.
Mr Dodia also observed that the development would encourage commercial banks to reduce their interest rates and allow businesses to borrow more.
He however cautioned that it would be prohibitive to borrow for infrastructure development because the returns on such kind of investment was usually five years or more.
“So we will begin to see that kind of investment once the policy rate drops to below 10 percent because it means that then banks will be offering loans under 10 percent and those are acceptable for the medium to long-term borrowing. So I think we are moving in the right direction,” he said.
