INTEREST RATES TO CONTINUE MODERATING, SAYS ZANACO
YIELDS and interest rates are expected to continue to moderate in 2022 despite the upside risks which have intensified in recent months.
A number of factors are indicating positivity in future interest rate developments, according to Zanaco March 2022 Economic Review and Outlook.
“Although we have seen upside risks to moderating interest and yield rates intensifying in recent months, we are still of the view that yields and interest rates will continue to moderate in 2022,” the bank stated.
Zanaco indicated that inflation had continued to moderate as forecasts suggested that it would hit single digit by end of year.
It stated that credit risk of borrowers had improved as the Zambian economic environment continued to recover from the pandemic induced recession in 2020.
This development, according to the bank, which was likely to see lenders warming up to credit applicants from the private sector.
“Finally, the ongoing talks for an International Monetary Fund (IMF) programme will help to enhance the country’s sovereign risk which could further help moderate the cost of funding especially from external sources,” the bank said.
It however indicated that despite the prospects of lower interest rates being projected, there were risks to this outlook.
Zanaco pointed out that the global liquidity situation was likely to start tightening as developed nations raised policy rates in an e ort to contain escalating inflation.
It also stated that the recent removal of subsidies which had led to pump prices for diesel and petrol rising in recent months was likely to limit the extent of inflation climb down and consequently the interest rate margins.
“Finally, the possibility of delays in concluding an IMF programme will force the government to continue relying on domestic financing to close the fiscal gap resulting in the crowding out effects through higher interest rates,” Zanaco stated.