CENTRAL Bank governor Christopher Mvunga says the country’s reserve position has improved more than it was in March this year, as the monetary policy committee maintains the policy rate at the current 8.5 per cent.
Giving a quarterly briefing on the monetary policy rate at his office yesterday, Mvunga said the Bank of Zambia was not as worried as previously because signs of economic improvement were there.
“The good news I can tell you, but I won’t give you the numbers, is that the reserve position has improved; but we reported on the 31st of March. But as of now the reserve position is much better than the way it was in March,” he told journalists. “The good news is, in this monetary policy sitting that we had one of the things that came out is there’s now a balance between positive things to the economy and negative things to the economy. The negatives being the potential for fuel hikes, electricity tariffs, depreciation of the kwacha.
The healthy side of that equation is the IMF discussions we are having which are looking positive and promising; the increase in the copper prices, the good crop harvest. So, we are seeing a potential that these things will set themselves. So, I don’t think right now we are as worried as we were in the previous monetary policy committee briefing.”
And Mvunga explained the BoZ’s reasons for maintaining the current policy rate.
“This is in view of improved supply of food, particularly maize and wheat following a strong crop harvest, higher than anticipated copper prices and improved external sector support,” he said. “In view of this, and to allow for the last Policy Rate adjustment to take full effect on the economy, the MPC decided to keep the Monetary Policy Rate unchanged at 8.50 per cent. This is also in recognition of existing vulnerabilities in the financial sector and fragile growth.”
Mvunga however warned that the Bank remains committed to adjusting the policy rate upwards should the expected drop in inflation not materialise sooner than anticipated.
Meanwhile, Mvunga said the bank expected inflationary pressures to ease due to improved supply of local commodities, among others.
“While inflation is projected to remain above the upper bound of the 6-8 per cent target range over the forecast horizon, inflationary pressures are expected to ease in view of the improved supply of food, particularly maize and wheat following a
good crop harvest,” said Mvunga. “In addition, the significant improvement in copper prices and renewed interest in domestic government securities by non-resident investors are supportive of the foreign exchange market and in turn lower inflation going forward. The decision also recognises existing vulnerabilities in the financial sector and fragile growth.”