By ZBT Staff reporter
The Bank of Zambia (BoZ) has again maintained the Monetary Policy Rate (MPR) which serves as a benchmark lending rate at 8.5 per cent. This is despite the current positive economic sentiment that Zambia is enjoying following the change of government and the peaceful transition of power.
Lending rates have resisted to follow the trend that have been seen in other economic indicators that has seen the Kwacha appreciate by about 30%, with Zambia’s Euro bonds yields having earlier been reported to have been the first to indicate the positive sentiment following the announcement of President Hakainde Hichilema’s win.
Speaking during a media briefing in Lusaka, Wednesday attended by the Zambian Business Times – ZBT, BoZ governor, Christopher Mvunga, announced that the central bank decided to maintain the MPR at 8.5 per cent for the third successive time since last February.
Mvunga explained that maintaining the MPR at 8.5 per cent was arrived at in view of the subdued economic activity and existing vulnerabilities in the financial system.
The MPR is the benchmark lending rate the central bank sets on commercial banks to either increase or decrease interest rates on credit facilities, while the Statutory Reserve Ratio (SRR) is the proportion of deposits a commercial bank, by law, must keep in cash or place with the central bank.
The SRR usually moves in tandem with the MPR.
“The Committee noted that, over the forecast horizon, inflation is projected to decelerate faster and edge closer to the target range than was envisaged in May, 2021, MPC meeting. Underlying the decline in inflation is mostly the favourable outlook for the exchange rate and improved prospects for the fiscal consolidation. In this regard, the MPC decided to maintain the MPR at 8.50 per cent. In arriving at this decision, the Committee remained mindful of the subdued economic activity and existing vulnerabilities in the financial system,” said Mvunga.
“Decisions on the Policy Rate will continue to be guided by inflation forecasts, outcomes and identified risks, including those associated with financial stability wand the COVID-19 pandemic.”
Commercial banks’ nominal average interest rates on loan facilities, which have generally remained elevated in recent years, have finally started slightly declining this year since the downward adjustment of the MPR last February.
BoZ data shows that banks’ nominal average lending rates have marginally dropped to 25.6 per cent by end-June, 2021, down from 26 per cent in March, this year. Interest rates on loan facilities linked to the MPR are directly impacted as this is the benchmark lending rate.
