Breaking News

Argentina Didn't Reach an Agreement With Holdouts: Mediator
Tweet TWEET

Zambia’s Central Bank Lauds Policy as Sata Pushes Rate Cuts

Photographer: Jean-Claude Coutausse/Bloomberg

Rising food prices and a weaker currency has fueled inflation, prompting the Bank of Zambia to raise its key rate by a quarter of a percentage point in October. Close

Rising food prices and a weaker currency has fueled inflation, prompting the Bank of... Read More

Close
Open
Photographer: Jean-Claude Coutausse/Bloomberg

Rising food prices and a weaker currency has fueled inflation, prompting the Bank of Zambia to raise its key rate by a quarter of a percentage point in October.

Zambia’s central bank Governor Michael Gondwe said monetary policy has been successful since the benchmark interest rate was introduced in March, even as President Michael Sata pushes for borrowing costs to come down.

Inflation in Africa’s biggest copper producer may end the year as high as 7.2 percent this month, just above the Bank of Zambia’s 2012 target of 7 percent, Gondwe said in an interview in Lusaka, the capital, yesterday.

“The policy rate has worked, but not at the pace that most people would feel comfortable with in order to spur” economic growth and create jobs, Gondwe said.

Sata is pressuring the central bank to help curb commercial bank lending rates of about 16 percent, which he says are too high, hindering investment in the southern African nation. The Bank of Zambia raised the benchmark rate once to 9.25 percent since it was introduced to help control inflation.

“We are employing monetary policy management approaches to address interest rates, including our policy rate,” Gondwe said. The benchmark rate is appropriate to ensure inflation doesn’t “jump beyond our expectations,” he said.

Businesses are also lobbying the government to help reduce borrowing costs. Commercial interest rates should be about 10 percent to 12 percent, Geoffrey Sakulanda, president of the Zambia Association of Chambers of Commerce and Industry, said in a Dec. 7 interview. The industry group is seeking talks with the central bank on interest rates, he said.

Jobless Rate

Gondwe said it would be “inappropriate” for him to comment on what the level of commercial bank interest rates should be.

Rising food prices and a weaker currency has fueled inflation, prompting the Bank of Zambia to raise its key rate by a quarter of a percentage point in October. The kwacha dropped 2.6 percent against the dollar since the beginning of July and was trading at 5,289 as of 8:46 a.m. in Lusaka.

Zambia is seeking to boost economic growth to lower a 14 percent jobless rate and cut poverty. The economy may expand 7.3 percent this year, state-owned Zambia National Broadcasting Corp. reported Dec. 10, citing the World Bank.

“We cannot continue to play games with matters that affect the lives of our people,” Sata said on Nov. 27. He gave the Finance Ministry and central bank “very little space and time” to bring commercial bank rates down.

The central bank’s requirement that lenders increase capital by the end of the year may help to ease liquidity constraints, reducing borrowing costs, Gondwe said.

“What is true is the higher the interest rates in the market, the more discouraging they are to the small and medium enterprises starting up and those already in business,” he said. “It retards the growth of jobs.”

Banks including Standard Chartered Plc (STAN), Standard Bank Group Ltd. (SBK), Barclays Plc (BARC), and FirstRand Bank Ltd. have operations in Zambia.

To contact the reporter on this story: Matthew Hill in Lusaka at mhill58@bloomberg.net

To contact the editor responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.