As the Bank of Zambia sets to announce the Monetary Policy Rate for quarter one, the Centre for Trade Policy and Development (CTPD) would like to urge the Bank of Zambia Monetary Policy Committee, to consider the broader economic situation as they determine the 2020 first quarter monetary policy decision.
There is need to consider the liquidity situation, economic growth prospects and indeed the already high cost of borrowing. The Bank of Zambia should also work at harmonizing its policy decision with the recent fiscal measures proposed by the Minister of finance,Honourable Dr. Bwalya Ng’andu, during his address on the state of the economy.
CTPD therefore advises the Central Bank to maintain the Policy rate. Zambia’s inflation has been on the rise, at 11.7 percent in December 2019, and 12.5 percent in January 2020. This rise in inflation would justify another upward adjustment in the policy rate or reserve ratio
requirement in order to revert to single digit inflation, towards the 6 to 8 percent target. It should however be noted that increasing the policy rate would result in increased liquidity constraints, higher cost of borrowing and a further contraction in economic activity. This is
certainly not in line with the fiscal measures aimed at stimulating growth through the private sector.
In considering the bigger picture, the Monetary Policy Committee should at the least maintain the policy rate in order to provide space for the fiscal measures to take effect. The Minister of Finance recently outlined a number of fiscal measures aimed at improving the debt situation. These included a suspension or moratorium on contraction of selected nonconcessional loans, cancellation of selected external project loans and re-scoping of selected externally financed projects. If these measures are implemented, the Kwacha is likely to
appreciate and thus reducing the inflationary pressure.
Furthermore, the Minister of Finance, asserts that private sector activity has been stifled by liquidity constraints associated with higher debt service payments and the accumulation of domestic arrears.
As the Ministry of Finance is slowly taking action to increase liquidity through the dismantling domestic arrears, the Bank of Zambia, should not be taking a counter action such as increasing the policy rate. Increasing the policy rate, though justifiable on the account of higher inflation, is not consistent with fiscal policy and would negatively affect Zambia’s growth prospects.
Issued By Mr. Bright Chizonde
Senior Researcher-CTPD
If u damned if do and damned if u don’t, wht choice is left?
I guarantee that no PF blogger will have a sensible comment on this article. Trust me, not even @KZ. If they did, the economy would not be in the pits.
CPTD raises a valid point on the tension between address the outlook on inflation and contractionary monetary policy. Indeed, raising the policy rate would counter fiscal measures. The trick here is the issue of credibility of MoF. If the dismantling of arrears is lumpy, there would be unhealthy swings in the money maker that will disrupt BoZ actions.
I say, raise the rate marginally to counter excess liquidity but reduce if there is credible policy.
Am just waiting for KZ comment,where is he?
Furthermore, the Minister of Finance, asserts that private sector activity has been stifled by liquidity constraints associated with higher debt service payments and the accumulation of domestic arrears.
this bane is a very sad state of affairs.
Good points here from the center that the minister should have on the finger tips flex and proactively review this 2020 there should not be a margin of error to miss the growth forecasts revenues expenditures financing and deficits as he clearly and categorically spell out the financial plans for the euros 2020
it can be done but it should recast and known now infant it could be clearly know by January 2020 The figures that he presented requires a view and clear path way