By Daily Revelation Editor
The Bank of Zambia (BoZ) has increased the Monetary Policy Rate by 100 basis points to 11 percent. BOZ Governor Denny Kalyalya also said BoZ has had to increase the statutory reserve ratio twice this month, first by 300-points to 14.5 percent and later by 250-basis points to 17-percent.
It takes very little intelligence if that is all one requires to understand that things are bad, as in really bad when the Central Bank revises the reserve ratio twice in two months, from the recently adjusted 14.5 percent to 17 percent.
At the same time, the Monetary Policy rate has been adjusted to 11 percent now, following up on another adjustment that happened just a few months ago.
In simple language, the Monetary Rate is the rate at which BoZ lends out money to financially stable financial institutions.
The reserve ratio is the percentage of deposits which commercial banks are required to keep as cash according to the directives from the Bank of Zambia. For instance, when BoZ wants to increase the flow of cash in the economy, it lowers the reserve ratio and when it wants to reduce the flow of liquidity it raises the reserve ratio.
Both these moves have been taken to steady inflation and the Kwacha, which has been depreciating uncontrollably for over one year now, since around October 2022, with some sporadic appreciations here and there following interventions.
The Kwacha rate to the Dollar at around K23.5 to US$1 is higher actually than the highest it ever got from the time of Levy Mwanawasa, through to Rupiah Banda, Michael Sata and Edgar Lungu.
Previous upward adjustments in both the Monetary Rate and the Reserve Ratio under the UPND administration have done nothing to arrest the Kwacha slide, and it is questionable the recent interventions will do anything to arrest the situation, thereby opening up the likelihood of some more painful adjustments upwards.
Both instruments will result in effectively raising the interest rates in the country at which people can borrow money from financial institutions. For others, it means that even the premiums they have been remitting to financial institutions on the money they borrowed will invariably go up and thereby eat into people’s incomes and send many into hardships and destitution.
For those producing the goods, because the interest rates have gone up, it therefore means that the cost at which they borrow the money for production will also go up. To offset the increased cost in production, the producer will pass that burden onto the consumer who will bear the brunt in that the cost at which they purchase the goods and services will also skyrocket. What BoZ is unleashing on the economy is a serious chain reaction which will affect every Zambian, especially the poor.
The Kwacha has been weakening mostly because the exchange market is squeezed, with there being little say from Zambians on how much is expropriated from this economy by the corporations, especially in the mining industry, which is the largest source of forex for the country.
It is the more reason why Zambians have been questioning the wisdom in Hakainde Hichilema’s administration to reduce mineral royalty payments from the mines when the prices of copper on the international market is very high. Hakainde’s administration argues that this is meant to attract foreign investment into the mining industry. But what is the benefit of getting that investment at the cost of the same people you are trying to serve? Are government policies not meant to serve the same people they are being created for? And what benefit will result from the same mining investment, apart from providing a few jobs here and there, while the mines are allowed to rampantly export the proceeds they make here.
The government has the opportunity to earn a fair share from its resources like the state owned Mopani, but instead of getting the local brains to run the company, by using the huge resource benefit as security, the administration is more preoccupied with getting a foreign investor, who for all intents and purposes will require borrowing to realise their investment? Isn’t this the same KCM route, where a mine has been given back to the same people who failed to run it, and as a result the country will not get the needed revenue from it for a number of years?
We are wondering why the BOZ should be squeezing monetary policy to its extreme limit and thereby affecting the poor in this very richly endowed country. Not everything in a country like Zambia should be left to the market forces. Serious involvement by government in the running of business in critical industries like the mining sector is seriously needed to benefit from the God given resources this country is endowed with. No investor comes here to serve Zambia’s interests. Try following the example of fellow copper producing countries like Chile where the government has a huge stake in the running of the mines. Even our next door neighbor Zimbabwe is beating us in this regard where the government’s stake in the mines is at appreciable levels and its economy has been showing signs of improvement in recent years.
Hakainde’s extreme capitalist mindset is affecting this country terribly, and if he does not change, this country will be damaged seriously for generations to come. This is not the time to be giving tax holidays to the already rich mining firms operating in the country.
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By Daily Revelation Editor
The Bank of Zambia (BoZ) has increased the Monetary Policy Rate by 100 basis points to 11 percent. BOZ Governor Denny Kalyalya also said BoZ has had to increase the statutory reserve ratio twice this month, first by 300-points to 14.5 percent and later by 250-basis points to 17-percent.
It takes very little intelligence if that is all one requires to understand that things are bad, as in really bad when the Central Bank revises the reserve ratio twice in two months, from the recently adjusted 14.5 percent to 17 percent.
At the same time, the Monetary Policy rate has been adjusted to 11 percent now, following up on another adjustment that happened just a few months ago.
In simple language, the Monetary Rate is the rate at which BoZ lends out money to financially stable financial institutions.
The reserve ratio is the percentage of deposits which commercial banks are required to keep as cash according to the directives from the Bank of Zambia. For instance, when BoZ wants to increase the flow of cash in the economy, it lowers the reserve ratio and when it wants to reduce the flow of liquidity it raises the reserve ratio.
Both these moves have been taken to steady inflation and the Kwacha, which has been depreciating uncontrollably for over one year now, since around October 2022, with some sporadic appreciations here and there following interventions.
The Kwacha rate to the Dollar at around K23.5 to US$1 is higher actually than the highest it ever got from the time of Levy Mwanawasa, through to Rupiah Banda, Michael Sata and Edgar Lungu.
Previous upward adjustments in both the Monetary Rate and the Reserve Ratio under the UPND administration have done nothing to arrest the Kwacha slide, and it is questionable the recent interventions will do anything to arrest the situation, thereby opening up the likelihood of some more painful adjustments upwards.
Both instruments will result in effectively raising the interest rates in the country at which people can borrow money from financial institutions. For others, it means that even the premiums they have been remitting to financial institutions on the money they borrowed will invariably go up and thereby eat into people’s incomes and send many into hardships and destitution.
For those producing the goods, because the interest rates have gone up, it therefore means that the cost at which they borrow the money for production will also go up. To offset the increased cost in production, the producer will pass that burden onto the consumer who will bear the brunt in that the cost at which they purchase the goods and services will also skyrocket. What BoZ is unleashing on the economy is a serious chain reaction which will affect every Zambian, especially the poor.
The Kwacha has been weakening mostly because the exchange market is squeezed, with there being little say from Zambians on how much is expropriated from this economy by the corporations, especially in the mining industry, which is the largest source of forex for the country.
It is the more reason why Zambians have been questioning the wisdom in Hakainde Hichilema’s administration to reduce mineral royalty payments from the mines when the prices of copper on the international market is very high. Hakainde’s administration argues that this is meant to attract foreign investment into the mining industry. But what is the benefit of getting that investment at the cost of the same people you are trying to serve? Are government policies not meant to serve the same people they are being created for? And what benefit will result from the same mining investment, apart from providing a few jobs here and there, while the mines are allowed to rampantly export the proceeds they make here.
The government has the opportunity to earn a fair share from its resources like the state owned Mopani, but instead of getting the local brains to run the company, by using the huge resource benefit as security, the administration is more preoccupied with getting a foreign investor, who for all intents and purposes will require borrowing to realise their investment? Isn’t this the same KCM route, where a mine has been given back to the same people who failed to run it, and as a result the country will not get the needed revenue from it for a number of years?
We are wondering why the BOZ should be squeezing monetary policy to its extreme limit and thereby affecting the poor in this very richly endowed country. Not everything in a country like Zambia should be left to the market forces. Serious involvement by government in the running of business in critical industries like the mining sector is seriously needed to benefit from the God given resources this country is endowed with. No investor comes here to serve Zambia’s interests. Try following the example of fellow copper producing countries like Chile where the government has a huge stake in the running of the mines. Even our next door neighbor Zimbabwe is beating us in this regard where the government’s stake in the mines is at appreciable levels and its economy has been showing signs of improvement in recent years.
Hakainde’s extreme capitalist mindset is affecting this country terribly, and if he does not change, this country will be damaged seriously for generations to come. This is not the time to be giving tax holidays to the already rich mining firms operating in the country.
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