Saturday, February 24, 2024

BoZ pushes up reserve ratio by 2.5% by prop weak Kwacha

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The Bank of Zambia has increased the statutory reserve ratio with effect from Monday, February 13th 2023 in a bid to support the weakening Kwacha.

In a circular to all commercial banks issued by Deputy Bank Governor-Operations Francis Chipimo, the Central Bank has increased statutory reserve ratios by 2.5 percentage points to 11.5 percent from the current 9.0 percent.

It says the revised statutory ratio of 11.5percent will be based on the weekly return of selected assets and liabilities from next Wednesday 8th February 2023.

It says the measure is aimed at addressing the volatility in the exchange rate which intensified in December 2022 and has persisted in 2023.

It also hopes the measure will help safeguard stability of the foreign exchange market.

The Central Bank sys the foreign exchange market has come under sustained depreciation pressure despite its support to the market through sales of foreign exchange proceeds, mostly from mining companies.

It said the market has been characterised by weak foreign exchange supply amid strong demand by market players for various purposes including critical imports of fuel, medicines and agricultural inputs.

“The trend is left unchecked, has the potential to undermine emerging stake macroeconomic environment. The Bank is mindful of the attendant risk to this action but deems the overarching potential benefits of stabilising the foreign exchange market at this point, outweigh the perceived adverse risks to the economy,” it read.

It said the Central Bank will continue to monitor closely developments in the macroeconomic environment and in particular, financial markets and take appropriate action as and when the need arises in line with the Bank’s objectives of price and financial stability.

“At any rate, the Bank will review the measure by June 2023.”

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