Domestic Savings could bring down interest rates-Bank Governor

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BANK of Zambia Governor Denny Kalyalya
BANK of Zambia Governor Denny Kalyalya

BANK of Zambia Governor Denny Kalyalya says there is need to encourage domestic savings in the economy for the country to bring down high interest rates.

Dr Kalyalya says the rate and level of savings within an economy helps to bring down high interest rates.

“Savings are always a very cost-effective source of funds for the banking system which then the banks can put together and use in the economy,” Dr Kalyalya said.

The central bank chief was speaking yesterday when he appeared before the Parliamentary Committee on Estimates that is considering the Income Tax Amendment Bill of 2015.

Dr Kalyalya said as a result of low savings, the banking system turns to source its funds from institutions of investors which usually peg its funds at 18 percent.

“One of the things that needs to happen in this economy is to increase domestic savings. Let more people save money. I know there are issues or factors that inhibit people from saving.

But in economies where they save, like China, the banks always have cheaper pool of funds to lend out,” Dr Kalyalya said

He said very few people in Zambia save money in banks, hence making the price of money high on the financial markets.

Dr Kalyalya said macro stability will also stop the high interest rates as banks will have a ready pool of funds to lend out cheaply.

“Another factor contributing to high interest rates is the low level of financial intermediation resulting in high levels of currency in circulation,” Dr Kalyalya said.

He said the higher interest rates have been caused by higher financing requirements leading to higher auction sizes for government securities against limited demand following the tight monetary conditions.

Dr Kalyalya said the Bank of Zambia is, however, implementing various programmes under the financial sector development plan, aimed at increasing financial inclusion and financial awareness.

He said there is need to come together as a country and resolve some of the challenges facing the monetary and economic sectors.

“We need timely action as a country to deal with our problems. Unemployment is a time bomb. Let us do something about it,” he said.

And committee chairperson Highvie Hamududu says there is need to put aside political inclinations and have consensus building for the well-being of the nation.

“We need to be having national dialogue to deal with issues that affect our country. There is lack of consensus and that is why we fail to agree even on matters like the constitution and so is the case with the economy,” Mr Hamududu said.

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10 COMMENTS

  1. Only if the Government stops moping-up liquidity from banking system will result in lower interest rates.

    As to average Zambian regularly saving money, please stop adding insult to injury. Today average Zambian is strangling to have three meals per day and you are asking him/her to save few Kwacha where will get paltry 2-3% interest and the same money is then borrowed to finance bloated Government machinery at 15%?

    Mr. Kalyalya, it looks like you have already lost contact with every day reality of life in today living “paradise” of Zambia.

    Please, give advice about saving to Mr. Chikwanda and his associates and not to the straggling masses.

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  2. Aleshaday; I totally agree with you 100% we are feeling to save even a K 100.00 from the time P.F got into power. The cost of living has gone up.
    I have deliberately started a conversation on public transport to hear peoples views P.F should not boast people are not happy how things are moving here Kitwe.

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  3. The composition of small and medium sized business in Chinese economy is 60% and accounting for employment of about 75% coupled with internet based banking innovations makes the multiplier in savings massive

    Contrast that with Chinas population and propensity to save and spend to Zambia, then you will realise the funding gap

    The proposal by the elders and most sincere and thinking one could be correct if the above scenario was true

    There is the issues of spending ,savings and activation of the economy and if most is driven by GOV 50% salaried that creates some issue

    Private weight against public is always important in the case of china ?structural change??

    Other…

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  4. Okay if we want to bank like WEBANK in china that’s the way but numbers must be to our side

    Work on the cross volatility of Assets and set policies to ensure allocation efficiency amongst various asset classes stimulating that intended goal of savings by those investing

    Generally an arbitrage investor will be looking at the most overpriced asset to invest in especially in the case of Zambia whose investing local compositions is low in value and in masses leaving on a living wage

    I will chose to save if the rate premium is to my side or I will be passively doing it like most without an active consideration where and marking to market

    “”Fragmented Financial…

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  5. You first work on creating environment sustainable for development by promoting small entrepreneurs and enterprises which in turn will generate more employment,with people now having more income then they may save the surplus. Without working on creating employment first,saving is practically impossible in zambia.
    No employment and living standard is unbearable everything is expensive.

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  6. In Zambia you earn negative interest. The paltry interest rate less all the bank charges. Don’t talk to us, talk to the banks

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  7. what is there to save.. DR. kalyaya sure?… look at a security guard,.. he earns k1,200.. he has to pay rent, food, school fees.. ama light imwe.. be real.. lats kick out PF they have failed beyond expectation…2016 Hh chabe.. don’t lose steam.

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  8. When a graduate needs money for investment there is nothing for him or her but when a political cadre needs money it is readily available. Tell me Dr. Kalyaya, who can make a better investment manager between the two? How can you have a grade zero or two in the name of a District Commissioner giving instructions to a Dr, Master and first degree holder! Honestly how can you run an economy purely based on patronage and not merit

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  9. Yes Governor, agreed 100%! But also consider simplistic and low level things like interest rates on savings account.
    How can we be expected to save our hard earned cash in commercial banks that offer us a paltry 2% pa as interest? The interest rate should be brought closer to levels that offer savers an assurance that their money is not losing value by being kept in the bank.
    Please ask, or even compel, the commercial banks to be reasonable and fair to savers.

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