Interest rates in banks and other regulated financial institutions are expected to raise by 1.25% following the announced raise in that benchmark policy rate. The Monetary Policy Committee at it’s November 18 – 19 meeting decided to raise the benchmark interest rate – the policy Rate by 125 basis points (1.25%) to 11.5% and inflation is now projected to remain above the upper bound of the targeted 6-8%.
Addressing the media in Lusaka on November 20, 2019, Bank of Zambia governor Dr. Denny Kalyalya has announced that the decision to raise the Policy Rate is intended to counter inflationary pressures that include exchange rate pass-through effects and bring inflation back to the target range in the medium term as well as to support overall macro-economic stability.
Dr. Kalyalya added that the decision arrived at was difficult as the committee was mindful of the impact it would bring to the economy hence went through a lot of information review from all economic sectors to ensure the decision best suits the interest of the people of Zambia.
He added that the rise in the Monetary Policy Rate raises un-intended consequences on the growth of the economy and financial stability, but the committee needed to rise to the occasion to avoid making decisions that may be a hazard to the economy by the committee.
The governor has furter indicated that the Policy Rate is not the major tool of addressing all issues sorrounding the economy as it also requires complements by the implementation of corrective measures by fiscal authorities and other key public policy makers.
“The committee recognises that to address the prevailing economic challenges, Monetary Policy actions alone are not sufficient hence the need to implement corrective measures. Moreover, Implemention of measures that address high fiscal deficit, debt levels and debt service as well as liquidity constraints and dismantling domestic arrears remain critical to maintaining overall macroeconomic stability and attaining sustainable economic growth,” he said.
Meanwhile, BOZ had at November 14, 2019 raised the Overnight Lending Facility – OLF rate to 28 percent from 17 percent and the increase in the OLF was aimed at instilling stability in the market and reining in inflationary pressures.
However, with the 125 basis points increase in the Policy Rate to 11.5 percent, BOZ has stated that the OLF rate will be 16.5 percentage points above and the Policy Rate remains at 28 percent.
