Private sector credit will improve - Absa

CREDIT to the private sector will begin to recover in the long term following the reduced monetary policy rate by the Bank of Zambia (BoZ), says Absa Bank Zambia Country Treasurer, Boston Nkuname.

The central bank on Wednesday last week lowered the benchmark interest rate 125 basis points to eight percent, the lowest ever recorded since May 2012. In response, Mr Nkuname said his bank had therefore reduced interest rates by 1.25 percent in line with the latest policy rate adjustments. “The policy rate reduction is a signal that interest rates will be declining and therefore, the expectation is that, in the long term, credit to the private sector should begin to recover, supporting consumer demand, wholesale and trade,” he said. Mr Nkuname said the lowering of the policy rate as indicated by the Central bank was to primarily support economic growth recovery. So far, he said, the impact of Covid-19 had seen reduced economic activities, with weakening demand, reduction in productivity and negative impact on employment. Mr Nkuname explained that a number of sectors had been impacted with the most notable being wholesale and trade, construction, transport and tourism. “Private credit expansion has also declined, meaning less funds are going to support the real economic activity,” he said. Mr Nkuname said the measures that the Central Bank had taken such as Medium Term Financing and the Bond buyback programme had seen increased liquidity on the market. Therefore, he said, increased funding to sovereign through securities auctions and reduction in short term interest rates, although, bond yield rates still remained high as investors still perceived long term risk. Mr NKuname further said: “inflationary risk still remains due to weakening local currency, but Central Bank as indicated by the Governor remains ready to deploy intervention measures necessary.”