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.