BANK of Zambia governor Dr Denny Kalyalya says the central bank is currently grappling with ways of raising foreign reserves because “right now, the reserves are not too good for our own comfort”.
And the Bank of Zambia has reduced the monetary policy rate from 10.25 per cent to 9.75 per cent. Responding to journalists’ questions after presenting a monetary policy committee statement for the fourth quarter of 2017, Dr Kalyalya noted that there was need to build the available reserves.
He also tied the reduction in reserves to debt servicing.
“It’s a bit tricky; when we are trying to build reserves through purchases from the market, we have to weigh the impact on the overall market because I think it’s still quite fragile in terms of the means of the market. But it’s a matter which we are clearing ourselves to ensure that we build reasonable reserves. Right now, the reserves are not too good for our own comfort – we are talking of 2.1 billion as at the end of December last year – which is close to three months of import cover. Our own target is to get to beyond four and if we have to reach the SADC target, it’s six months of import cover. So, definitely it’s a matter that we constantly grapple with and we are looking for ways to augment our reserves,”
Dr Kalyalya explained.
“…copper prices [are] rising but you see continued reduction in reserves; it’s very tricky…. But maybe before I go to that; does that worry us? Of course, it does. We want to build, not to lose reserves. One of the major erosions into that is debt service, obviously – debt service has risen quite significantly.”
On why commercial banks were not reducing the lending rates despite a reduction in the policy rate and statutory reserve ratio, the governor said: “That question would be best directed to them (banks)…our view is that they (lending rates) should be coming down because we have consistently reduced the policy rate, we have also consistently reduced the statutory reserve ratio. But for the specific reasons why individual [banks are not lowering lending rates], it would be helpful if you posed that question to them so that they can explain…”
Dr Kalyalya further disclosed that due to, among other reasons, a weak economic growth, the monetary policy committee decided to reduce the policy rate by 50 basis points to 9.75 per cent from 10.25 per cent.
“The Committee took into account the following reasons in arriving at its decision: reduction in inflation to the six per cent, lower bound of the target range, inflation projections which point to inflation remaining on the lower bound of six to eight per cent target range, high lending rates and subdued credit growth to the private sector [and] elevated level of non-performing loans, which continue to pose risks to financial stability,”
Dr Kalyalya further indicated that the statutory reserve ratio had been reduced by 300 basis points to five per cent from eight per cent.