Association OF Microfinance Institutions in Zambia -AMIZ says there is a
possibility for interest rates to be pushed up following the decision by the
Central Bank to increase the statutory reserve ratio by 3 basis points in a bid
to control inflation.
AMIZ president Webster Mate said the increase means banks will have to
deposit more than what they were initially deposited with the central bank. He
noted that all deposit-taking financial institutions have a requirement under
the law to keep statutory reserves with the central bank. “What that does
essentially is to withdraw a certain amount of money out of circulation” noted
Mate. He said this means that those who want to borrow cannot borrow as much as
they want because the price has gone up, and the amount of money available for
them to borrow has also gone down.
Speaking in an exclusive interview with the Zambian Business Times ZBT, Mate
said it is likely that interest rates on credit will be pushed higher. Noting
that if the demand is high and supply is low it could have a short-term effect
on the interest rates.
He noted that the measures the central bank is implementing are to try and
arrest runaway inflation which he has been caused by oil prices, as well the
country’s economic factors such as the mealie meal price among others. He also
noted that the exchange rate is not doing well which may have coerced the
decision. “These decisions when taken take time, more than a year in some cases
for the desired effect to be seen. So in the short term before that desired
effect comes, you are likely to see negative reparations like interest rates
rising” said Mate.
Mate further mentioned that Zambia is an economy where the demand for credit
is huge and that regardless of what happens, borrowing is still almost
undeterred. He said the difference between the levels of supply and demand is
too huge.
He noted that interest rates are also heavily dependent on the financial
institution’s factors. He noted financial institutions also borrow money which
means a cost of funding and have operating costs which also affect the interest
rates, as well as an estimate of non-performing loans or loan loss which also has
an impact. “If an institution projects that it will lose more money, it has to
recover that. All those are some of the factors that go into the computation of
interest rates” said Mate.
