Denny Kalyalya
Denny Kalyalya

Bank of Zambia Governor, Denny Kalyalya says the Central Bank is in the process of adopting a new system of controlling money supply otherwise known as monetary policy framework.

Monetary policy is the process by which the a central Bank of a country controls the supply of money, often targeting an inflation rate or interest rate to ensure price stability and general trust in the currency.

Dr. Kalyalya says the new monetary policy framework will develop models that will help forecast the country’s inflation rate up to two years ahead.

He says there has been an increase in the interest rates which reflects the level of fiscal deficit following the decision by the Central Bank to tighten the monetary policy.

Dr. Kalyalya however stated that tightening the monetary policy has helped support macroeconomic stability though it has resulted in a reduction in credit and money supply growth.

He was speaking at a breakfasting meeting in Lusaka on Tuesday.

And Dr Kalyalya said the Bank of Zambia is aware of the displeasure exhibited by the stakeholders due to the upward adjustment in the statutory reserve ratio from 14 percent to 18 percent.

He said the move was meant to mop-up liquidity to a tune of nine hundred million Kwacha.

Meanwhile, Dr. Kalyalya disclosed that the growth of the economy might remain around six percent.

He said various factors have triggered a sharp deterioration in the exchange rate which has depreciated by around 15 percent over the first quarter of the year.

And Zambia Chamber of Commerce and Industry president Geoffrey Sakulanda has urged the Central Bank to highlight some of the policies that will be implemented to strike a balance between managing the exchange rate and the interest rates.

Mr. Sakulanda said monetary policy implementation has a direct impact on the operations of businesses.

He said it is important that various stakeholders have access to such information on what the bank is doing.

Mr. Sakulanda said due to government’s revision of the mining tax, there will be implications that will lead to budget deficit, which will likely to increase domestic borrowing.

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20 COMMENTS

  1. We need to move away from inflation targeting as this has not been good for us bwana Governor

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  2. The PF must not continue with their ‘comme d’habitude’ approach to policy changes. Let them dialogue extensively with stakeholders including the citizenry before making such changes. A handful of people cannot surely subject millions to their erroneous and rushy assumptions.
    This is surely the worst definition of a functional government.

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    • Just crawl back to your basement if you don’t understand the topic at hand and continue lamenting on why you left Zambia to go and work as a Namazai

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  3. Inflation targeting as a transmission mechanism has not worked well in most central banks policies and achieved measures in a well quantified manner The transparency of it and credibility is an issue

    Targeting interest rates might more creditable and quantifiable to appraise and measure in effectiveness Independency is also an issue from MOF for inflation targeting to work

    Look at the US , ECB, UK and others The Transmission mechanism on Inflation to effect quick results may not yield positivity Look at relationship between monetary policy and economic growth, inflation, interest, and exchange rates;
    and contrast the use of inflation, interest rate, and exchange rate targeting by central banks including

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  4. Ghana Inflation targeting is an art and not a science and measures often surprising but not foreseen It may be effective to target within 2% like most central banks do given there objectives but may not be a reliable measure It may work in combination with Interest rate targeting but below 2%

    You may target low inflation rate and not Zero inflation Targeting zero per cent inflation runs a higher risk of a deflationary outcome as some inflation may also be welcome situation

    The current monetary and fiscal structure of Zambia will need a careful look at rebalancing having some neutral rate will be effective to compensate and avoid QE at a higher level also

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  5. On the Whole the Dr reasoning is Good and is assuring and providing confidence and we can only watch and support the efforts being made so far but certainly complementary must come from MOF if what is being said here will work on inflation within a small measure as you cannot control both sides of the coin in the current Zambia’s economy

    The Pronouncements have been sound given the current Zambian Scenario in Monetary and Fiscal

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  6. Ifyabupuba fye. we are always kept on out toes for so called NEW things which bear us no fruits.

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  7. For the sake of winning political power , state house and to be called president, the PF under the leadership of Sata condemned everything the MMD did including among many other good things, control of inflation, exchange rate stability and high economic growth rate
    by engaging in propaganda and lies . Yes, MMD had their shortcomings but they did far much better than the current crop of PF (leaders). It’s high time UPND steered us back on course otherwise we are headed down a cliff.

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  8. The Zambian Economy is very promising given correct flexing and rebalancing of policies

    Learning from the Case of Israel Central Bank on the Good side and Bad side of Policy In Inflation targeting can save time and efforts in spurring and stimulating positive results ,

    macro managing financial and other facilities available to best achieve the much needed success in a very well crafted and coordinated manner with effects on inflation and growth in out put and productivity gap well thought after

    The case of Israel Central Bank on Monetary Policy is a good piece to review learn and see to react and position

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  9. So what are we talking about here how about Fiscal Policy? Is it expansionary fiscal policy in a recessionary gap or contractionary fiscal policy in an inflationary gap?

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    • And you claim to be a University graduate when you are busy misusing terms wabe t chi colour. Has he talked about Fiscus here

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  10. The Cardinal rule is that inflation rate (annual) should be around 2% for any meaniful growth forecast Accordingly you decide how far you need to hold that benchmark to spur growth and stimulate

    Most central banks have experienced difficulty in providing sufficient monetary stimulus to spur a robust recovery in their economies given the Debt To GDP position and the power of spending including the transmission of changes in rates and for Zambia you need to see the Current accounts and see the policies to effect in deficits

    Ideally you will holding your inflation benchmark near to Zero and not below Zero The stability of the target is a virtue in its own right as you think about rates in that…

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  11. that Direction

    Central Banks effects economic growth by raising and lowering borrowing costs. Higher costs crimp risk-taking; lower costs stimulate expansion .

    Those costs, expressed as interest rates, combine the price of money with an additional increment to compensate for inflation. Higher inflation means rates will run higher in normal times, allowing the central banks to make larger cuts during periods of duress and the case of Zambia fiscal and monetary is a policy dilemma though not a forgone conclusion They seem to be addressing well to spur that growth and contain the numbers
    to smoothly sail through Adjustments of short-term interest rate should capable of stimulating the economy if not then its not worthy it

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  12. In the first place LT, monetary policy is targeted at inflation and interest rate is the means for doing so. In the second place, before this governor comes up with this useless framework, he should know that monetary policy cannot work by itself and needs to be supported by fiscal policy. Accordingly, he needs to talk to the useless Chikwanda and Lungu to stop theft of public money, deal with corruption, reduce borrowing and reform government. In the third and final place, this governor raised reserve ratio from 14 % to 18% and said the move was to mop up liquidity. The problem is not excess liquidity but cost push inflation caused by visionless Lungu. This governor has misdiagnosed the patient and wants to prescribe a drug which will have little or no effect. The liquidity he is trying…

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  13. to mop up is money stolen by Lungu and his corrupt government because ordinary people do not have the money and by his action he has denied them credit He should stop cheap politicking and wanting to be seen to function.

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  14. Comment: I stand wondering in the manner our economic policies
    are handled in Zambia. The senario seems to be a Push and Pull. There seems not to be a what i might term constitutional economic policies in zambia, this makes our economical management vulnarable to un realistic manupilation by every jim and jack. My personal suggestion is that let there be a constitutional economic policies that would stand a test of time. In fact all economic difficulties Zambia is going through has already been experienced by many countries, all what is needed is to BenchMark others,
    iam with the opinion that we should consult widely involving all stakeholders, which include opposition parties. We should not allow every political party that forms Government to manupulate the economy for cheap…

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