Amidst rising inflationary pressure as energy risks deepen, the central bank on Africa’s red metal producer Zambia on 14 November hiked its overnight lending rate to commercial banks by 1,000 basis points to 28%. This was confirmed by sources close to the matter. In a communique to commercial banks the Bank of Zambia widened the liquidity spread above the current benchmark interest rate by 1,000 bps to 1,750bps above the policy rate of 10.25%.
This will be the highest the central bank has ever tightened the OLF rate since its December 2015 levels when its overnight bank rate facility was 10% above the record MPR rate of 15.5% during the Kariba energy crisis era to 25.5%. This is true evidence of energy crisis preceding a liquidity crunch to come, a financial analyst advised in the capital.
This development comes well ahead of the rates decision meeting set for 18-19 November. Zambia’s currency slid to 6 months lows of 14.05 for a unit of dollar on Thursday 14 November. Inflation is already in breach of the 8% upper bound in double digit of 10.7% and is forecast to close the year between 12-15% breeding a very bearish interest rate mood in the market.
The Kwacha Arbitrageur