JACOB MWANZA CAUTIONS BOZ AGAINST CAUSING ECONOMIC HAVOC
FORMER Bank of Zambia (BoZ) Governor, Jacob Mwanza, has cautioned the central bank to use the Statutory Reserve Ratio instrument in a sparing manner as it has potential to cause economic havoc.
Dr Mwanza explained that failure to carefully use the instrument could impact prospects of economic growth as it hits the financial sector directly by squeezing credit.
He said this at the launch of the Monetary Policy Report and Stakeholder Engagement in Lusaka yesterday.
“The instruments at your disposal are very sharp and I think the sharpest of them all is the statutory reserve. Statutory Reserve hits financial institutions very directly and of course the consequences of that is that you expect credit squeeze to come in and that could impact prospects of economic growth.
“You need to use this instrument, it is the sharpest of all the instruments at your disposal,
in a very sparing manner. The recent increase in statutory reserves was justified but the extent is, which worries me a little bit, is that the basis for deciding on a jump of 900 basis at one goal?” he asked.
He also wondered: “What drives MPC to make such a huge jump at once? Which might also have negative implications of the growth of the economy.”
In a move seen as a desperate attempt to thwart the free-fall of Kwacha and rising inflation, the BoZ this month hiked the Statutory Reserve Ratio by nine percent to 26 percent.
BoZ Deputy Governor - Operations, Francis Chipimo, said in a circular that with effective February 5, 2024, the minimum statutory reserve ratio would increase to 26 percent from 17 percent respectively.
“The BoZ wishes to advise all commercial banks that with effect from February 5, 2024 that the minimum statutory reserve ratio on both local and foreign currency deposits will be increased by nine percent to 26 from 17 percent,” Dr Chipimo stated.
He said in terms of compliance, the revised statutory reserve ratio would be based on the weekly return of selected assets and liabilities as of Wednesday, January 31, 2024.