REDUCE LENDING RATES

THAT the Bank of Zambia (BoZ) has maintained the monetary police rate at 9.75 per cent should guarantee consistency and stability in the economy.

This, in essence, should result in relatively lower lending rates to allow the private sector access capital from commercial banks at affordable levels.

There have been sustained calls from the private sector for Government to make the cost of borrowing affordable, even for the small-scale enterprises.

Invariably, in a private sector driven economy, there has to be stability in the economy and particularly in the financial sector.

The financial sector is an important vehicle for economic growth provided liquidity and affordable capital are guaranteed.

Thus, it is now incumbent upon financial institutions to reduce lending rates which of course must be benchmarked against the monetary policy rate.

The policy rate has remained lower for some time now.

Risk pricing and other factors can still remain within reasonable levels, hence there is no justification for financial institutions to maintain high lending rates.

Perhaps, commercial banks are taking advantage of the high demand for capital by the private sector – the major players in the economy.

It was envisaged that lending rates in financial institutions will remain within reasonable levels after the change of policy from base rate arrangement – set by individual banks – to monetary policy rate which is determined centrally by the BoZ.

Therefore, variations in the levels of lending rates are expected to be minimal because benchmarking is based on the same figure – monetary police rate as determined periodically by the central bank.

Yes, the determination of the rate depends much on economic fundamentals such as inflation rate.

But as BoZ Governor Denny Kalyalya observed, the current monetary policy rate level is appropriate because inflation has been trending downwards among other reasons.

Inflation is projected to rise above 7 percent during the second and third quarter this year.

Thereafter, the level will decline towards the lower bound of the 6 to 8 percent range over the remaining quarters of the year.

Secondly, it is important to note that copper prices are expected to blossom and this will arrest any inflationary pressures.

It will be important for the Government and the BoZ to address factors that are causing high Non-Performing Loans (NPLs).

Indeed, high lending rates are an encumbrance to economic growth and this has been the worry in the private sector.

In particular, the Private Sector Development Association has often voiced concerns over the high lending rates.

Capital becomes difficult to access and this results in fragility in economic growth because private sector activity is stifled.

Although for the past week the Kwacha has faced volatility, it is expected to remain below the K10 mark per US $1.

The local currency is relatively stable, inflation as indicated earlier is within the lower range and the Gross Domestic Product projection is encouraging.

Government spending in the domestic economy has recorded some upwards trend, what with the recent release of K700 million for the completion of infrastructure development projects.

With such attractive economic fundamentals and other economic factors, it is expected that the cost of borrowing will come down.

Financial institutions should steadfastly lower the lending rates to boost the private sector and ultimately encourage sustainable growth.

Private sector players on their part must ensure they meet their obligations. This will reduce the levels of Non-Performing Loans.