Zambia Central Bank Raises Interest-Rate Limit After Kwacha DropMatthew Hill
The Bank of Zambia increased the maximum amount lenders can charge for credit after efforts to support the currency of Africa’s second-biggest copper producer made funding more expensive.
The cap on lending rates rises to 28 percent from 21 percent effective immediately, Tukiya Kankasa-Mabula, deputy governor in charge of administration, said in an e-mailed statement today.
The central bank introduced the limits in December 2012 to spur economic growth and create jobs through lowering the cost of capital. Yields on Zambia’s one-year treasury bills reached a record 19.99 percent at an auction last week. The kwacha has lost 10 percent against the dollar this year, the biggest drop among the 24 most-traded African currencies after Ghana’s cedi, according to data compiled by Bloomberg.
The increase in the maximum interest rates “very much reflects the higher cost of funds, but also the intent of the authorities to keep loan spreads sensible,” Razia Khan, head of Africa research at Standard Chartered in London, said in an e-mail.
Lending rates will probably rise further because of the increased cap, and this may attract foreign investment and lead to a stronger currency, FNB Zambia, the local unit of FirstRand Ltd., said in an e-mailed note.