BOZ cut policy rate to mitigate Covid impact on growth

Bank of Zambia (BoZ) Denny Kalyalya observed that Zambia’s economic conditions during the second quarter of this year have worsened and prospects for growth are weak.

Addressing the media during a quarterly briefing in Lusaka recently, the Central Bank Governor attributed this to a substantial decline in consumer demands, wholesale and retail trading, noting that Zambia’s economy is projected to contract by 4.2 percent from earlier projections of 2.6 percent.

He said the sharp rise in the number of Covid-19 cases has had a negative impact on Zambia’s economy.

The Central Bank Chief also stated that credit to the private sector has slowed down to about 10.4 percent from around 19.5 owing to fears of high default rates by banks, however, noting that noted that despite the expansion of credit to government, the money supply has reduced in the economy.

Dr. Kalyalya said inflation is also projected to come down and hoped this will improve food supplies and help in mitigating the impact of Covid-19 on the economy.

Dr. Kalyalya further noted the need to adjust macroeconomic fundamentals and debt sustainability to achieve economic stability in the country.

On interest rate, BoZ has reduced the Monetary Policy Rate from 9.25 percent to 8 percent and the monetary Policy rate is expected to influence lending rates charged by commercial banks.

Dr Kalyalya said that the Monetary Policy Committee settled for the reduction to safeguard the financial stability of people’s lives owing to the impact of the pandemic.

Dr. Kalyalya said the 125 basis points reduction in monetary policy is expected to trigger a reduction in interest rates by banks.