By Isaac Zulu
Private Sector Development Association chairperson Yusuf Dodia has the increase in repo rates by the Bank of Zambia will result in increased lending rates by commercial banks and thereby making borrowing very expensive for Zambians.
And Dodia has said that the increase in repo rates will fuel inflation, which he said will lead to the high cost of doing business.
Speaking with Daily Revelation, Dodia pointed out that the increase in policy monetary rates will compel commercial banks and other lending institutions to lend money to individuals at higher interest rates.
“The banking system operates in such a manner that if I want to borrow K100,000 from a particular bank and that bank has no cash, it will get that money from a different bank at an increased interest rate. The commercial banks will in turn push this increased interest rate to an individual wanting to access money from there,” Dodia explained. “So clearly, the increase in the policy monetary rate by the Central Bank will impact negatively on people borrowing money from banks and other lending institutions. It will have a negative bearing on the end users.”
And Dodia said that the increase in repo will fuel inflation, leading to the high cost of doing business.
He said that the high cost of doing business will adversely affect the country’s economy.
“Already there are indicators that there will be some increase in the cost of fuel because of the prolonged war between Russia and Ukraine. There are indicators that electricity tariffs will go up, ZESCO has applied to the Energy Regulation Board to increase electricity tariffs by 37 per cent then by 10 per cent in the subsequent years. All these factors will lead to the high cost of production,” Dodia said. “And now with the announcement of the increase in the policy monetary rate by the Central Bank, what will happen is that the cost of doing business will become high. Small businesses will not survive, the economy will not post some positivity.”
Dodia, however, said that the increase in repo rates by the Bank of Zambia will not have some immediate impact on the liquidity in the country.
“Liquidity is not determined by the policy monetary rate, but by state reserves. The only thing that this non availability or constrained liquidity will or can have is that it will slow down the growth of the economy,” said Dodia.
BoZ yesterday increased the repo rate from 9 percent to 9.5 percent.
