Monetary Policy Rate Hike Raises Concerns Over Credit Stability
The recent decision by the Bank of Zambia (BOZ) to increase the monetary policy rate has sparked concerns over its potential impact on credit structures and economic stability, according to economic analyst Mr. Kelvin Chisanga.
In an analysis following the announcement made earlier today by BOZ Governor Dr. Danny Kalyalya, Mr. Chisanga highlighted the ramifications of the upward adjustment, particularly on the cost of credit and trade finance.
He warned that the move could create significant challenges for businesses, particularly small and medium-sized enterprises (SMEs), in accessing affordable financing amidst the current economic hardships.
Economist Chisanga explained that the increase in policy rates typically leads to higher financing costs for business projects, which could impede economic growth and hinder social sector development projects aligned with Budget 2024.
He noted that the rise in borrowing costs would also add to the challenges faced by businesses, exacerbating the cost of doing business.
Moreover, Mr. Chisanga expressed concerns about the potential impact of rising fuel and electricity prices, which could further strain businesses already grappling with increased financing costs.
He emphasized the need for careful attention to address these challenges, especially in light of a looming drought that threatens food production and security.
Despite these concerns, Mr. Chisanga suggested that the monetary policy rate hike might serve as a tool to mitigate inflationary pressures by cooling demand-side fiscal factors.
He acknowledged the efforts of the central bank in safeguarding the macroeconomic environment but stressed the need for continued vigilance, particularly in managing emerging effects on the local exchange market.
In conclusion, Mr. Chisanga cautioned that the implications of the rate hike would directly affect credit supply and channels in the domestic market, potentially causing instability effects on loan portfolios and repayment plans.
He emphasized the need for businesses to seek alternative sources of financing to sustain their operations and investments amidst the challenging economic landscape.
