Commercial banks and Micro finance lending rates are expected to slid further downward following a drop in the monetary policy rate (MPR). This follows the reduction of the of the policy rate by 1.5% to 11 percent from the 12.5 percent. The salary backed loans are priced off the MPR and this cut should result in the minimum reduction of 1.5%, a direct passing on to consumers.
Commercial and secured lending has also received a boost following the cut in the statutory reserve ratio(SRR) to 9.5 percent from 12.5 percent. This is a huge cut of 3 percent and expected to result in more funds being available for commercial banks to lend to the business community. The cut simply means that 3% of the funds that commercial banks were required to deposit with the central bank will now be made available for onward lending.
Bank of Zambia Governor Dr. DENNY KALYAYA revealed this to the media saying current economic indicators contributed to the decision to push the rate down. Dr. KALYAYA said that the single digit inflation rate of within 6 to 8 percent cannot go unnoticed hence the policy rate needed not to remain the same.
He said that the good time to ease the rate is when the local currency is performing well against other foreign currencies that are good for the Country. The Central Bank is expecting Commercial Banks to reciprocate the decision to their clients by reducing the lending rates. “Evidence is not there to confirm that there is a cartel among financial players to block reduction in commercial lending rates” he said.
Zambia’s major sources of foreign exchange has remained with mining and foreign interest in treasury bills and government bonds as well as the Construction industry. The need and drive for Diversification is still imminent to protect the economy from concentration risk on a copper based economy.
Inflation is projected to remain within the target average of 6-8 percent over the medium-term. Dr. KALYAYA says this is giving space to address other areas. On economic growth it is expected that GDP will increase due to Agriculture growth and rebound in electricity generation including Higher mining input supported by the Construction sector.
On the Intermarket Bank re-opening, Dr. KALYALYA said the process to reopen will take much longer than expected due to a prudent approach being taken. He said the Board is not yet in place to oversee the restructuring agenda. Deputy Governor Dr. BWALYA N’GANDU said the general banking environment is fair and there is no new entrant on the market.
Despite the consecutive reductions in the MPR, the Salary backed loans lending rates have remained high with most commercial banks pegging their rates at over 30 percent per annum. This perhaps is pointing to the central bank to consider retaining to the margin regulatory regime. Some banks which are currently charging say 34percent per annum will just drop down to 32.5 percent, which is still too high for the consumers.
One other area also that needs to be worked on is the intimancy between Monetary Policy and Fiscal Policy for the Zambian economy to reap the full benefit of stronger economic fundamentals. The Ministry of Finance has made a pledge to be giving quarterly updates on its management of both government revenue and expenditure, it remains to be seen if revenue leakages from delayed implementation of Electronic Fiscal Devices (EFDs)and the land titling project in Lusaka will take off to drive the Property Transfer Tax and rental withholding tax collections.