By Nation Reporter
CURRENT fiscal conditions in the market will remain tight for now because loosening them would put more pressure on the exchange rate, says Deputy Bank of Zambia (BoZ) Governor (operations) Dr Bwalya Ng’andu.
Dr. Ng’andu said at the press briefing on Monetary Policy Committee (MPC) meeting for 2016 first quarter, that liquidity conditions would remain tight for the sake of stabilizing the exchange rate which had since been steady in the last few weeks.
“We keep the conditions tight for a reason that loosening will probably end up putting more pressure on the foreign exchange. And as you know when there is depreciation in the currency that is caused by excess liquidity.
“You immediately see a direct transmission from depreciation to higher prices and therefore it defeats the whole purpose of trying to contain inflation,” he said.
He stressed that all Government authorities markets would remain somehow suppressed for a while until there was improvement in the liquidity conditions in the market.
Commenting on the current high interest rates ranging between 38 to 43 percent, Dr. Ng’andu said the rates were temporal and would reduce as liquidity in the market improved.
“Clearly, lending at 43 percent is not a certain way of lending and we hope that as conditions in the market and liquidity improve, the banking system will begin to reduce those rates,” he said.
He said however said the banking system took into account the inflation and risk rates anchors before coming up with the lending rates.
Dr. Ng’andu explained that banks could not lend money below the inflation rate which was currently standing at 21.8 percent.
“But the banks also have a challenge of rates they borrow at. They are borrowing at quite high rates from institutional lenders and that determines the rates at which they will also lend,” he said.