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.
While the average lending rate is 16.3 percent, pricing varies from 10 percent to 21 percent at commercial lenders depending on term and risk, said David Chewe, chief executive of the Bankers Association of Zambia.
“The banks recognize the need to lower their lending rates to support increased credit extension to the productive sectors of the economy and it is expected that further interest downward interest rate adjustments will be made,” he said in an e-mailed reply to questions.
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 5,270 as of 4:47 p.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.”
Commercial lenders have nearly trebled their loans to smaller businesses from the end of 2010 to June 30 this year, when they reached about 1.3 trillion kwacha, Chewe said. Zambian banks have also cut the average lending rate to small and medium enterprises from 24.6 percent to 10 percent over the same period, according to the Bankers Association.
Banks including Standard Chartered Plc, Standard Bank Group Ltd., Barclays Plc, and FirstRand Bank Ltd. have operations in Zambia.