Borrowing cheaper for private sector - BoZ
By BUUMBA CHIMBULU CREDIT for the private sector has been made cheaper following interventions by the Bank of Zambia (BoZ) to reduce the monetary policy rate and the statutory reserve ratio by 75 percent and 150 basis points, respectively.
These interventions by the central bank are expected to reduce the cost of money whose percentage is still on the high side of about 25 percent.
Despite the reduction of the policy rate to 11.0 percent from 12.5 percent in August this year, the pace at which interest rates have been coming down has been slow.
The prevailing high interest rates has continued to constrain access to credit, particularly by the productive sectors of the economy.
BoZ Governor, Denny Kalyaya, yesterday announced that the Monetary Policy Committee decided to reduce the policy rate to 10. 25 percent from 11.0 percent due to weak growth in credit to the private sector.
Dr. Kalyalya explained to the media that the committee also took into account the risks to financial stability as reflected in the elevated Non-Performing Loans (NPLs) which posed as a challenge to the growth of the private sector.
He also explained that the committee observed that the financial sector would effective 2018 begin using a new accounting standard which may have implications in providing credit to the private sector.
"Private sector growth is the one which will help growth in the economy. The committee also took into account the sluggish economic growth which has been growing quite slow. It is not in the 7 percent a range as seen since 2011 and 2014,
Interest rates have, broadly, continued to decline. However, commercial banks’ lending rates have remained high and credit to the private sector has continued to be subdued," Dr. Kalyalya said.
He also said continued reduction in inflation rate was among the reason which led to the reduction of the policy rate.
Dr. Kalyalya predicted that inflation rate over the next eight quarters would remain around the lower band of inflation target in 2019.
He also announced that economic growth prospects over the medium-term prospects were expected to improve, with Gross Domestic Product (GDP) growth for 2017 and 2018 projected at 4.2 percent and 5.0 percent, respectively.
"Over the next eight quarters, it is projected to trend towards the lower bound of the target. The risks to inflation are , on balance, currently assessed to favour stability in the exchange rate of the Kwacha on the back of the recovery in commodity prices , are expected to support low inflation," Dr. Kalyalya said.