The central bank in Africas red metal producer in its first rate decision meeting has held rates unchnaged at 11.5% for benchmark policy rate and left its cash reserve requirement pat at 9%. Alive to risks to growth fueled by rising energy risks that have driven inflation to 12.5% the governer Denny Kalyalya is cognisant that inflation will remain elevated in the medium term.
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Inflation based monetary policy. Zambia’s monetary policy is inflation based. Kalyalya noted higher ebbing repricing risks evidenced by an uptick in one year treasury bill yields to 29% and the most liquid point on the Kwacha demand curve the 5 year point to 33.5%. The committee notes that an elevated Kwacha demand curve signals risks of interest rate spiral which is overcrowding the domestic credit market.
Widening fiscal and monetary policy disconnect. In the economic review brief by the MinFin, Zambia’s fiscal woes have deepened with an additional yard of external debt stock to $11.2billion while domestic arrears representing liquidity starved to the real sector up to K26.2billion. Earlier in a Fitch note on 03 February Zambia’s long term issuer rating on foreign currency debt was affirmed at CCC. The copper producers appetite for dollars to absorb debt service in addition to petroleum and agriculture funding are key pressure points for exchange rate slide. The central bank remains the largest offtaker of dollars in shoring reserves whose cover on imports remains anaemic.
The central bank will continue to monitor risks to growth and adjust its levers as an when there is need to. Growth momentum remains feeble in a monetary policy bottomed environment and a fiscal embattled front.
The Kwacha Arbitrageur
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