Following monetary policy easing on Wednesday 20 May, the Bank of Zambia lowered its Overnight Lending Facility – OLF by 225 basis points to 25.75%. In a memo dated 21 May to all commercial banks, BOZ advised that the OLF rate would be adjusted to 25.75% while maintaining a margin of 16.5% above the ruling benchmark interest rate as previously.
Overnight lending facility is the interest rate that the central bank will charge a commercial bank from it in emergency circumstances overnight. The rates are very punitive to drive a behavior that forces banks to obtain funding from the interbank at far more lower rates for which the central bank should be the last resort.
The wide liquidity spread of 1,650 basis points reflects the current market liquidity conditions. The central bank cut rates 225bps to 9.25% in a quest to stimulate domestic credit in a shriveling economy ravaged by disease pandemic effects. The Zambian economy is set to recede by 3.5% in 2020 according to the IMF.
Kwacha Arbitrageur