Hiked policy rate to slow down economic growth - ZAM

ZAMBIA’S economic growth will be slowed down due to increased interest rates following the hiking of the Monetary Policy Rate (MPC) to nine percent by the Bank of Zambia.

The Central Bank last week hiked the MPR by 50 basis points, to nine percent from 8.5 percent in an effort to contain inflation.

The Zambia Association of Manufacturers (ZAM) Chief Executive Officer, Florence Muleya, however feels that whilst the MPR stance defended a likely situation in the future, it did not take into consideration the current situation in the country.

Ms Muleya acknowledged that economic growth in the second quarter of 2021 was at a record high of 8.1 percent, last seen over seven years ago.

“However, this growth is a once off growth that is likely to be wiped away in the second half of the year, due to factors such as inadequate electricity and the now increased interest rates.

“Increased interest rates will slow economic growth and even increase unemployment though often seen as a necessary tool to keep prices in check,” she said in her reaction on the MPR.

She said ZAM’s expectation was that the monetary authority would opt for an expansionary monetary policy aimed at increasing economic growth and expanding economic activity to align with the Government’s policy direction for 2022.

Ms Muleya explained that economic growth should have been aided by the monetary authority’s reduction of the interest rate to promote spending money and making saving unattractive.

“The increased money supply in the market would have worked to boost investment and consumer spending. The lower interest rates would have especially served to encourage businesses and individuals to get loans on favourable terms and spend in the economy.

“Many economies around the world have held onto this expansionary approach since the 2008 financial crisis and now more so during the Covid-19 era. But we are told this will result in inflation,” she said.