The Center for Trade Policy and Development (CTPD) has welcomed the decision by the Bank of Zambia to increase the Monetary Policy Rate (MPR) by 50 basis points to 8.5 percent from the previous 8.0 percent.
CTPD Researcher for Public Finance Wakumelo Mataa has disclosed that the decision is expected to reduce the aggregate demand pressures and moderate inflation in the medium-term.
Mr Mataa explained that implying that commercial bank lending rates will go up, money supply will contract resulting in a slow-down in demand-pull inflation.
“CTPD welcomes this decision as the rise in the policy rate is expected to subdue aggregate demand pressures and moderate inflation in the medium-term, implying that commercial bank lending rates will go up, money supply will contract and there will be a slow-down in demand-pull inflation,” he said.
He explained that in the short-term, prices of basic commodities, such as groceries and food items, are expected to remain high due to the lagged effect of the weakening kwacha but they will slow-down in the medium-term when the MPC decision takes full effect.
He however, expressed concern with the sustained fiscal pressures that have continued to inhibit the effectiveness of targeted monetary policy measures.
Mr Mataa said to this effect, there is need for government to re-align fiscal and monetary policies to ensure a coordinated approach to the restoration of the macro-economic stability.
“There is need for supplementary efforts that will target to address cost-push factors that have continued to drive inflation. long-term measures to moderate inflation should largely revolve around increased production and productivity in the Agricultural Sector, which seems highly likely given the good rain season,” he stated.
He also added that this would go a long way in string food supply and moderate inflation, stemming from rising food prices, adding that efforts to stabilize the kwacha will greatly underpin the moderation of non-food prices in the long-term.
He further advised government to succeed at securing an extended credit facility program from the on-going discussions with the International Monetary Fund as this will be a big step towards navigating the debt restructuring process, reducing debt to sustainable levels and restoring fiscal fitness.
Yesterday the central bank announced a rise in the Monetary Policy Rate following the escalation in inflationary pressures, which drove inflation further away from the upper bound of the 6-8 percent target range.
This is according to a statement availed to the media in Lusaka today by Center for Trade Policy and Development Researcher for Public Finance Wakumelo Mataa.