By CentralBankNews.info
Zambia’s central bank raised its policy rate by 50 basis points to 12.50 percent to “ensure the leveling off of inflation pressures over the third quarter is consolidated into lower inflation in 2015.”
The Bank of Zambia, which has now raised its rate by 275 basis points this year, said inflation is forecast to remain at these elevated levels throughout the rest of this year and into 2015, above the inflation target of 7.0 percent set by the finance minister for end-December 2015.
Zambia’s headline inflation rate rose to 7.9 percent in October from 7.8 percent in September.
The Bank of Zambia issued the following statement:
The renewed interest of non-residents in the economy was also reflected in the capital market. The Lusaka Stock Exchange (LuSE) registered an increase in market capitalization of 1% and an increase in the All Share Index of 1.8%. In terms of non-resident participation, LuSE recorded a net inflow of foreign portfolio investment of US $17.4 million, compared to a net outflow of US $12.8 million witnessed during the second quarter of the year, with a total of US $19.1 million worth of stocks bought against sales of US $1.7 million.
The growth in both domestic credit and broad money rebounded during the third quarter, after registering sharp declines during the second quarter of the year following the tightening in monetary policy. This reflected the easing in liquidity conditions by BoZ as well as some pick up in Government spending. Domestic credit rose by 14.8% to K28.5 billion from K24.8 billion in June. This was mainly due to the 68.9% and 7.4% rise in lending to Government and households, respectively. Credit to public enterprises fell, however, by 21%. On an annual basis domestic credit grew by 10.9% at end-September compared to a decline of 5.1% in June 2014. |
At end-September commercial bank loans and advances had actually increased by 1.2% compared to a decline of 1.5% in the second quarter. With respect to the overall composition of credit, households continued to account for the largest share of outstanding credit at 34.3% followed by agriculture (17%), manufacturing (11.7%), wholesale and retail trade (8.8%), and mining and quarrying (6.2%). Broad money increased by 2.9% to K33.6 billion in September 2014 from K32.7 billion in June 2014, a reversal of the 2.2% decline witnessed in the second quarter of the year. The growth in broad money was driven by a 20.6% increase in net domestic assets following a 68.9% rise in lending to Government. Net foreign assets on the other hand fell by 6.7% mainly due to the decline in net international reserves. On an annual basis, broad money growth stood at 16.1% at the end of the third quarter. Commercial banks’ average lending rate remained unchanged at 19.3% in September 2014. However, the commercial banks’ average savings rate for amounts above K100 and the average 30-day deposit rate for amounts exceeding K20,000 edged upwards to 3.6% and 6.7% from 3.5% and 6.6%, respectively. Real interest rates remain high, with the real average lending rate rising to 11.5% whilst the real savings rate for amounts exceeding K20,000 remained negative at negative 1.1%. |
During the third quarter, the foreign exchange market was characterised by lower volatility and the Kwacha appreciated against most of its major trading partner currencies and remained relatively flat against the US dollar. This was in contrast to the instability that characterised the second quarter of the year. Important drivers of the stability were, however, the measures taken by the central bank to reduce Kwacha liquidity in the money market. The Kwacha closed the quarter at K6.26 per US Dollar – approximately the same level as at the end of the second quarter. Against the British Pound, the South African Rand and the Euro, the Kwacha appreciated by 4.8%, 5.7% and 7.3%, respectively. The overall supply of foreign exchange improved with steady supply witnessed from foreign corporates and the mining companies. In keeping with its commitment to manage excess volatility, the Bank of Zambia bought US $85 million and sold US $69.1 million during the third quarter. In real terms, the exchange rate as measured by the real effective exchange rate index, appreciated by 7.4% with the index moving to 98.1 in September from 105.8 in June.
The next MPC meeting is scheduled to take place on February 8, 2015. In the interim, the MPC will continue to monitor financial sector developments as well as developments in the broader economy and will not hesitate to take appropriate monetary policy measures that safeguard macroeconomic stability and ensure that the country’s growth objective is not stifled.”
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