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Hike highly expected in Monetary Policy Rate by Bank of Zambia!
By: Kelvin Chisanga
As the Bank of Zambia Monetary Policy Committee sits this week from today up to tomorrow, we are likely to see an hike in the monetary policy rate to be announced on Wednesday which will be contrarily to some of our views owing to the fact that the credit pipeline, local economy and fiscal energies will totally be disturbed. Here below are some of the reasons that I focused on to based on my views.
The global economy has seen with many challenging situations and will continue to see rugged growth, due to unstable geopolitics such as the Russian-Ukraine war which now included the recent Israel-Palestine war. These factors among other elements will underplay the potentials in the global economy. The Zambian economy is likely to close the year 2023 on a lower output than the earlier expected growth margins, due to changes in output performances in its wide sectors. Inflation in Zambia has been showing strong upward movements taking it far away from the desired policy corridor of single digit, as this is driving unhealthy cost pressure in prices. However a serious shift in the conditions in the middle East could push oil prices higher, a strong case to undoing the trend for good and this can put a lot of things in disarray.
The troubles for the Zambian Kwacha are not yet over, Zambia’s apex bank has been trying to cool this pressure experiencing in the domestic currency. So, the bank of Zambia hit to lose the breaks on statutory reserve ratio twice this year in February and November by trying to cool down this overheating effect with the local market conditions though the proper remedy is directly to do with export games, thus the raise of rates remains to be a real possibility in their views, and along with it, this week’s focus on monetary policy rate looks like it, it will follow suit with a raise by either going for a 50 or 100 basis point, as justification still sit that the local market currency will continue to rally behind of the dollar against other currencies.
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However, in view of the current prevailing situations, the bank of Zambia had to sell a substantial quantity of FX holding to stabilize the interbank foreign exchange market though it is said that the reserve as at July stood at $2.7 Billion, as this intervention has been used trying to bring good fortunes on the Kwacha though a situation which is looking not to improve with monetary policy tools as last minute surviving kits., as many have raised questions on inflation targeted measures good enough to continue work with.
The foreign exchange reserves remains on average but getting on faster lane this last quarter. Inflationary pressure have shown strong upbeat but will continuously be monitored fiscally and monetarily in order to ensure that the country has enough to cover for essential critical imports.
The credit sector remains with low uptake, with contraction in money supply, and private credit working towards the 2023 targets. Agriculture is the leading pie on the table with the highest growth potentials, but remains at a one-third of the complex credit situation seen in the market. The local market produce is still standing huge threats owing to the strong regional demand, though a strong call is placed to work a Zambian model to start pushing in value additions to the crops in order to eve serve Kwacha from experiencing losses.
Borrowing has not worked as per market expectations within the banking sector due to challenges faced with some non performing loans especially from second, third and fourth quarter compared to a year before. On the other hand, banks margins have shown declines in most quarters this year compared to the same patterns of quarters a year before.
