The Bank of Zambia has announced an increase in the Monetary Policy Rate from 10.25% percent to 11.50%.
Grappling with energy poverty and rising inflationary pressure, two day deliberations by the monetary policy committee commenced Monday 18th November into Tuesday with the announcement made by BOZ Governor Dr. Denny Kalyalya today.
The Kwacha has been on a one way traffic losing streak with a year to date depreciation of 17% given rising dollar demand and asset sell off pressure as sentiment wanes.
Zambia’s reserves are at a decade low at just below one and half yards translating to import cover 1.6 months which has incapacitated the central bank from sterilizing the market through offloading dollars.
The adjustment comes barely a week after the Central Bank increased the commercial banks overnight lending rate and for the same reason: curb inflation.
And Economist Chibamba Kanyama says the adjustment is a big adjustment in relative terms.
Mr Kanyama noted that the Bank of Zambia had announced this year it would increase the Monetary Policy Rate again if inflation continued to rise hence the decision was expected.
He said in his assessment, the Bank of Zambia remained faithful to its mandate and has carried out its work well to institute monetary interventions that would help stabilize the economy during the time of uncertainty.
Mr Kanyama however said that this is not a cure to the ongoing economic challenges as the more the Bank of Zambia intervenes in the market, the more things are not well and they need change of strategy.
He said the increasing the Monetary Policy Rate at the time the country is likely to register the lowest GDP growth rate in years, industrial output already affected by load shedding, government facing weak financing options and general liquidity conditions already tight is like continuously massaging a malaria-hit child with a wet cloth without knowing what to do next.
Meanwhile, Mr Kanyama added that the Ministry of Finance statement yesterday following the conclusion of the IMF Staff Visit did not provide much cheer either.
He noted that there is a paragraph in the statement that reveals that government has run out of options about what to do with the economy.
“The statement reads in part, ‘The Government will maintain close contact with the Fund in finding solutions and ensuring that policy interventions are undertaken to address challenges and vulnerabilities that the country is currently facing”, he said.
Mr Kanyama said whereas the BoZ move is aimed at stabilizing investor confidence, the same measures undertaken will have a long term detrimental effect on the economy.
He said the Central Bank has done its part but that part is to provide breathing space for fiscal policy to kick in much more aggressively, expand the size of government revenues, prioritise spending, make austerity an implementable strategy, provide effective leadership across the public sector.
Mr Kanyama said the Minister of Finance needs to have a stronger firm hand on the treasury, get the IMF program on board and get all citizens to understand what is happening and convince them to be ready to pay the full price.
“If we do not pay the price now, it will be harder as we get into 2022. This is one issue that now requires collective effort”, He added.