Standard Bank Group which operates in Zambia as Stanbic Bank has predicted that the Bank of Zambia will today raise its monetary policy rate to 11.25%.
In May, the Central Bank raised the Monetary Policy Rate 10.25 per cent from 9.75 per cent, representing 50 basis points, for the first time in over a year.
Bank of Zambia Governor Denny Kalyalya is today expected to hold a quarter four policy committee media briefing this morning where he is expected to reveal the monetary policy rate.
And Phumelele Mbiyo, a senior economist at Standard Bank Group Ltd. in Johannesburg told Bloomberg that the central bank is looking to tighten kwacha liquidity, perhaps to quell demand for foreign exchange.
Mr Mbiyo predicted that the Monetary Policy Committee will increase the base rate by 100 basis points to 11.25% today.
“The Bank of Zambia is in a challenging position,” Mr. Mbiyo said.
“Most of the pressures facing the economy are either due to exogenous shocks because of the drought conditions earlier in the year or due to fiscal-policy conduct.”
The central bank increased its overnight lending rate by 10 percentage points on Friday to a record high of 28%.
It said the goal was to instill “stability in the market and to rein in inflationary pressures.”
The kwacha has depreciated 4.7% this month against the dollar, almost as much as Chile’s peso, the world’s worst performer, leaving it 15% weaker this year.
Inflation, meanwhile, accelerated to a three-year-high of 10.7% last month.
Zambia’s dollar-bond yields average 19.6%, according to Bloomberg Barclays Indexes.
Meanwhile, Economics Association of Zambia President Lubinda Habaazoka has condemned the decision by the Bank of Zambia to increase the overnight lending rate.
Dr Habaazoka has since advised the Bank of Zambia not to use old tactics to manage the economy.
“My only advice to the central bank and ministry of finance is that let’s not use old tactics to react to worsening macroeconomic fundamentals like exchange rates or inflation,” Dr Habaazoka said.
“Surely how can we increase overnight lending rates as a solution to inflation? In 2019? If you want workable solutions that will boost the economy go to countries that have gone through similar problems but managed have managed to come out.”
He charged that Zambia is going through textbook problems and the solutions are in the same textbook at the back of the book.
“But you need to read the correct textbook.”
“I remember at the just ended Russia Africa Summit. The President of Congo DR tells Putin that in Congo, mine investors don’t pay tax and that all monies are externalized. Putin immediately answers to say that Russia had the same problems in the 90s and now they are gone after being solved. In fact solving those problems contributed to Russia’s repayment of all IMF, World Bank, Paris Club and other debts years before those debts were due. After that, Russia created a stabilization fund that could be surpassed by a few in the world. I expected the Congolese President to make a follow up question on how Russia did that? Alas it never came. I expected those that monitor foreign news in Zambia for Zambia’s economic development to be interested and follow up but that never happened.”
Dr Habaazoka added, “We can’t use the same tactics since independence to deal with the economy. The inflation we have now is exchange rate driven because we don’t have enough forex to meet our forex demands. So the solution is not increasing overnight lending. The solution is getting forex and first of all from the mines.”
“I know majority of economists in Zambia were taught by the same lecturers but can we please look at experiences from elsewhere.”
“Am still in a state of shock that overnight interest rate increase can be a monetary policy solution.”
He charged, “Economics is not always about econometrics which the BOZ put much emphasis on. Fundamental analysis has weaknesses in an economy where behavior is increasingly influencing economic development. When quantitative economics was a champion, big companies had assets and products that determined their values. Today companies like dotcom companies can only own one building but be worth over $50bn. It’s all about perceptions.”
“Behavioral finance at its best now. Anyway Behavioral Finance only gained prominence in the early 2000s and it’s yet to be offered by major universities in Zambia. Maybe that’s where the problem is.”