The High inflation rate is certainly going to put pressure on the Bank of Zambia (BoZ) to increase the policy monetary rate which may negatively effect the economy and the banking sector, Private Sector Development Association (PSDA) chairperson Yusuf Dodia has said.
Mr Dodia said in an interview that the current inflation rate of 22.9 percent would compel the Bank of Zambia (BoZ) to push up the policy monetary rate which at the moment stands at 15.5 percent.“We cannot make recommendations for BoZ because they make their recommendations based on analysis of the financial sector, but our expectation is that the policy rate will go up.
“This is because the inflation rate is going up and so it is only natural that one should see the policy go up but this real analysis which will be done by the Bank of Zambia,” he said.
Mr Dodia explained that this development would cause banks to lend customers at a high rate adding that it was not possible for banks to lend money at lower rate than that of inflation.
“This means that the banking sector itself cannot lend out money at anything less than inflation, so if inflation rate is sitting at 22 percent, one should expect that the interest rates at the bank will be at a minimum of about 24 percent, giving them a two percent margin,
“But the more likely rate from the bank is around 20 percent which is giving them a 6 percent margin as lowest interest rates; this is because the banking interest rates are based on risks,” he said.
Mr Dodia said manufacturing would become expensive with the price of goods and services going up.
He said this was likely to continue happening until Zambia begun to export more and there was a lot more availability of foreign currency in the economy.
Meanwhile, Mr Dodia has advised politicians to be cautious during the campaign period and avoid issuing statements which would frighten Zambia’s investments.
He said frightening investment would create panic and anxiety in the economy while creating more demand for foreign exchange.
“Politicians must desist during the campaign period from making comments that will frighten investment and create anxiety which will create demand for foreign currency and this will add to the inflation rate. Politicians need to think about the future instead of concentrating on just winning elections at any cost,” he said.