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More suffering, BoZ hikes lending rates

Filed under: Breaking News,Business |
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Bank Governor Dr Denny Kalyalya

The Bank of Zambia has increased the Monetary Policy Rate (MPR) from 12.5 percent to 13.5.

The decision will affect both lending and borrowing rates in the financial market, but as well reduce the quantity of money in circulation in the economy.

Speaking at a media briefing, BoZ Governor Dr Denny Kalyalya said the increase of the MPR has been made after a subject of intense discussions.

“The committee decided at the meetings held yesterday and previously May 13th to raise the policy rate by 100 basis points to 13.5 percent. This was informed by a number of factors. Even at 13.5 percent, you realise that it is below the inflation which is 13.8 percent,” he said.

Dr Kalyalya explained that the Committee noted that inflation has continued to move away from the target band of six to eight percent aimed at, adding that there is a persistent rise in inflation expectations which if left unchecked can undermine macro-economic stability and efforts towards robust and sustained economic growth.

However, Socialist Party leader Dr Fred M’membe says the increase of Monentory Policy Rate will damage the economy.

Dr. M’membe pointed to the International Monetary Fund’s (IMF) recent downward revision of Zambia’s GDP forecast for 2024 from 4.7% to 2.3% as evidence of the economy’s struggles.

He highlighted that with an annual population growth of 2.5%, the real GDP growth stands at -0.2%, indicating a technical recession.

Dr M’membe argued against further increases in the Statutory Reserve Ratio (SRR), suggesting that a reduction would be more beneficial.

He also expressed skepticism towards inflation targeting as a solution for reducing inflation, emphasizing that monetary policy alone is insufficient.

“BoZ’s efforts are being undermined by fiscal policies,” Dr. M’membe stated. “Raising the monetary policy rate will only inflict more harm on the economy.”

He urged the BoZ to maintain or reduce the current rate, criticizing the disconnect between the policy rate and commercial bank lending rates, which range from 25-28%.

Dr. M’membe accused commercial banks of unethical conduct, investing K14 billion of Constituency Development Fund (CDF) balances in government securities, and called for BoZ intervention.

He is advocating for expansionary measures to stimulate economic growth and proposed the reintroduction of a facility similar to the K10 Billion Medium Term Refinancing Facility established during the COVID-19 pandemic to aid businesses and individuals affected by the current drought and subsequent power and water rationing.

Dr. M’membe has called for the MPC to consider the hardships faced by Zambians and for the BoZ to make independent decisions to support the struggling economy.

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