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Bank of Zambia Contemplates Monetary Policy Rate Hike Amid Global Uncertainties

The Bank of Zambia’s Monetary Policy Committee is poised to announce a hike in the monetary policy rate this week, according to economic analyst Kelvin Chisanga. 

This decision, contrary to some expectations, comes as the global economy contends with various challenges, including geopolitical tensions such as the Russian-Ukraine and Israel-Palestine conflicts.

Mr. Chisanga highlighted several factors contributing to this anticipated shift in monetary policy. The global economy is experiencing rugged growth, and unpredictable geopolitical events are likely to undermine its potential.

In particular, he stated that the Zambian economy is expected to close the year with lower output than initially projected, influenced by changes in performance across various sectors.

Inflationary pressures in Zambia have been on the rise, deviating from the desired single-digit policy corridor. Mr. Chisanga noted that a significant shift in conditions in the Middle East, particularly in relation to oil prices, could further complicate the situation.

Mr. Chisanga pointed out that the Zambian Kwacha has been under pressure, prompting the central bank to take measures to cool its depreciation. 

Despite interventions earlier in the year, he noted that the Bank of Zambia is considering a monetary policy rate hike as a means to address challenges in the foreign exchange market. The possibility of a 50 or 100 basis point increase is being discussed, with a focus on stabilizing the local currency against the dollar.

The central bank had previously adjusted the statutory reserve ratio twice in February and November, attempting to mitigate the effects of an overheated market. While the reserve stood at $2.7 billion in July, recent interventions indicate a continuing struggle to bring stability to the Kwacha.

Mr. Chisanga also noted that the credit sector is experiencing low uptake, with contractions in money supply and private credit not meeting 2023 targets. Agriculture, despite its growth potential, faces challenges, particularly with strong regional demand posing threats to local market produce. Chisanga suggests a Zambian model focused on value addition to crops to protect against losses.

He highlighted that borrowing within the banking sector has not met market expectations, with challenges posed by non-performing loans, especially in the second, third, and fourth quarters compared to the previous year. Bank margins have shown declines throughout the year, adding to the complexities faced by financial institutions.

As the Monetary Policy Committee convenes, Mr. Chisanga stated that all eyes are on the Bank of Zambia’s decision, with stakeholders keenly anticipating how these measures will impact the domestic economy amidst a backdrop of global uncertainties.

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