BoZ MONEY SQUEEZE TO HURT BUSINESSES
…in an attempt to curb the escalating inflation, further driving upwards the borrowing rate from banks
BUSINESSES and individual citizens should brace for hard economic times as the Bank of Zambia (BoZ) has continued to tighten and squeeze liquidity from the economy whose resultant effect would be to pay more for money borrowed as the interest rates are set to take a sharp following the upward adjustment of the benchmark for lending rates by the Central Bank, Yusuf Dodia has warned.
The Bank of Zambia (BoZ) yesterday, yet again, put in place another measure to squeeze liquidity in the economy in an effort to curb the escalating inflation rate.
The latest measure, which is hiking its benchmark lending rate by 150 basis points to 12.5 percent, is meant to control inflation rate.
This measure will, however, drive the upward percentage adjustment of borrowing money from financial institutions. Recently, the central bank revised the statutory reserve ratio by 900 basis points to 26.0 percent effective February 5, 2024 from 17.0 percent in November 2023.
On the hiking of the monetary policy rate, BoZ Governor, Denny Kalyalya, explained in Lusaka yesterday that it was done to steer inflation to the target band of between six to eight percent and help anchor its expectation.
The hiking of the policy was raised to 12.5 percent from 11 percent previous quarter.
In raising the policy rate, Dr Kalyalya pointed out that: “The Committee took into account the stability of the financial and importance of robust growth over a medium-to long term.”
Dr Kalyalya said inflation rose to an average of 12.9 percent from 11 percent in the third quarter. He said inflationary pressure had continued with annual inflation rising 13.2 percent from 13.1 percent in December 2023.
“Decision on the policy rate will continue to be guided by the inflation outcomes, forecast and identified risks, including those associated with financial sector stability. The Bank stands ready to take appropriate action should inflation persist above the six-eight target band,” Dr Kalyalya said. But Private Sector Development Association (PSDA) Chairperson, Yusuf Dodia has warned of increased interest rates due to the measure the Central Bank has just announced.
“This impacts on the cost of borrowing because the policy rate influences the interbank lending rates which means banks are borrowing and lending to each other at a higher rate and they pass on this cost to their customers,” he said in an interview.
Mr Dodia stated that the development was also meant to support the banking industry to ensure stability and confidence from the public.