Zambia’s central bank capped commercial lending rates at 18.25 percent, responding to pressure from President Michael Sata to curb high borrowing costs he said were hurting economic growth.
The limit, which applies to new loans taken after Jan. 2, affects banks including Standard Chartered Ltd., Barclays Plc, Standard Bank Ltd., and FirstRand Ltd., which have operations in the country. The Bank of Zambia arrived at the limit by adding a 9 percentage-point margin to the 9.25 percent policy rate, it said in an e-mailed statement from Lusaka, the capital.
“The Bank of Zambia will periodically revise the factor applicable on the policy rate in response to changes in economic fundamentals,” it said.
The average commercial lending rate in Africa’s biggest copper producer is 16.3 percent, while pricing varies from 10 percent to 21 percent, the Bankers’ Association of Zambia said Dec. 13. 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 World Bank cautioned the government from taking such measures, Zambia Country Director Kundhavi Kadiresan said in an opinion piece in the state-owned Daily Mail today.
Capping interest rates will “do much more harm than good,” she wrote. “When banks have interest rate caps imposed on them, they usually respond by lending less” and avoid granting credit to higher-risk small- and medium-sized businesses, Kadiresan said.
Commercial lenders “have never opposed the capping of interest rates,” Bankers’ Association of Zambia Chief Executive Officer David Chewe said by phone from Lusaka. The industry body will respond to the announcement that rates will be capped after meeting with members on Dec. 24, he said.
The limitation of commercial lending rates “is not going to make much difference, but at least it’s a start,” Geoffrey Sakulanda, president of the Zambia Association of Chambers of Commerce and Industry, said by phone from the capital. “It’s still quite high, I would be comfortable with a lower limit.”
The move was not a result of pressure from Sata’s office, Bank of Zambia spokesman Kanguya Mayondi said by mobile phone. “We’ve been speaking to banks for a long time now and we’ve been asking them to act and they’ve not acted up to now,” he said.
Kenya’s parliament in April voted against a proposal to cap interest rates in east Africa’s biggest economy.
The kwacha erased an earlier decline against the dollar and strengthened for a second day, appreciating 1.4 percent to 5,125 by 4:01 p.m. in Lusaka.