The central bank in Africa’s copper producer Zambia has announced its decision to hold rates at 10.25%, this was established in a briefing at the Bank of Zambia in Lusaka the capital. Announcing this outcome after two days of deliberations, Governor Dr. Denny Kalyalya acknowledged key risks to growth ranging from energy bottlenecks resulting in power generation strains that have dampened business pulse for the last 10 months.
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The central bank head also cited risks to inflation stemming from currency weakness and food security risks given the spike in the prices of maize meal necessitating the BOZ to reign in measures that will curb the index from ballooning further. Inflation is currently outside the BOZ target bracket at 8.8% and is expected to remain elevated for the next two years as fiscal risks given the posture of the counterparty ( Zambia) persists.
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Credit appetite has waned over the last few months given the credit rating downgrades by Fitch (CCC) and Moody’s (Caa2) and elevated government security yields have not made it any easier for commercial banks to extend credit to consumers. Average lending rates have started to rise with strain forecasted on the non performing loan stock across the industry. NPLs currently are just below the prescribed threshold of 10% at 9.9% an improvement from last year but risks breaching again should risks to growth materialize.
Foreign currency reserves remain low at $1.4billion translating to 1.6months of import cover exposing the economy to vulnerabilities to stress shocks. Receiving mineral royalty taxes in dollars as a reserve build hedge has not addressed the issue as the velocity in build up is not as fast as the rate at which dollars are utilized to fund energy purchases in crude oil.
Anemic growth despite signaling need for stimulus has forced the committee to provide a more balanced stance to keep current rates unchanged but shift focus to taming inflation through curbing the currency slide by managing monetary supply tighter. The BOZ will however review changes in market conditions constantly and will be flexible in its policy stance.
Compiled by the BT Research Team
