Increment in Statutory Reserve Ratio by BOZ, puts seasonal productive raw materials in tight corner!
Social Economist Kelvin Chisanga’s ‘Expectations of 2023 Zambia’s National Budget!
By Kelvin Chisanga
The 3% or 300 basis point increases to be witnessed by the local banking and financial market in Zambia starting from 13th November, will cause a lot of market distortions even if the main aim is a view around medium term targeting toward efforts of stabilizing Kwacha but this is coming at a huge cost to the domestic economy in a number of ways.
However, with this policy gauge being put in place to curb inflationary effects, it is strongly believed that both the inflation and forex losses can be tackled with this monetary policy instrumentation though what we are seeing now is an expectation of about K2.4 Billion taken out of the market as this comes in as an aggressive policy measure on credit expansion meaning that we will have some tight liquidity conditions amidst low economic activities coupled with non performing loans.
The increment being triggered by next business week on Monday will cast a dark shadow on our local economy by reducing volumes of deposits to be undertaken by most commercial banks and this will also cause a strong effect on loanable funds for those undertaking some business activities through overdraft, advances, guarantees etc.
It is unfortunately that some turbulence observed on the political scene have also congregated some influence on the money behavior coupled with high cost on most essential commodities, a situation that is desiring to be tackled with ramping up on agriculture and ensuring that all farming inputs are delivered right on time.
Though, it seems a good model to moderate the current economic effects but it looks like we are tying money multiplier on the other side, a case that will be pretty much counterproductive especially this season when the economic wheels are almost slowing down during the month of holiday with its seasonal peak for entertainment.
So, in essence increasing of the statutory reserve ratio is coming with some complementary benefits of taming inflation with a speed, though we equally have some offsetting effects sitting on the fence as well. It is therefore well cognizant to state that this particular measure will take down with a low profile on the local economic growth pattern, which will also do affect the market demands and conditions for credit expansion amidst standing market potential for agriculture and mining products, and will also trigger a bad effect with an increase on the government’s cost of borrowing.
Lastly, this policy intervention has direct impact on stocks and bonds in maturities, as this will negatively affect return on investment. Sadly, we have missed some good elements on the pack such as debt restructuring to make good on the forex performance etc., though it is also unfortunately that some of the central bank strategies being used are not necessary effective model to combat inflation and its high time BOZ engaged into making proper assessment of industry performances relative to just making policy shifts without mirroring the dark cloud covering on the economy. It is believed that exchange rate pressure will not be subdued by this measure and this seems to be a very ineffective tool to bring down inflation. If anything the reverse will happen when production drops and demand increases.
In short, what we will be seeing going forward in the short to medium term, is that some commercial banks will do a price up on new loans in order to recover interest income lost of K2.4 Billion making credit access extremely difficult and expensive too. Though, on the wider sense without the industry in view, the current demand and spending for consumers in the local market will remain unaffected, simply because most of the Zambians don’t have and do not qualify for credit lines. Zambia’s economic conditions and activity will go on muted due to the increase in the cost of capital.
