Reserve Ratio Reverses

From Zambian Economist Tue Jan 22 2013, 01:18:00

Bank of Zambia (BoZ) plans to increase the minimum reserve requirement that commercial banks must hold from 5% to 8% - effective January 28. It is trying to keep a lid on inflation by mopping up excess liquidity after the rebasing exercise.

Inflation has already been accelerating to 7.3 percent year-on-year in December from 6.9 percent in November, with higher food prices seen as a major factor. This is threatening to continue with the rebasing. The BoZ move should remove somewhere between K400bn - K700bn in the system.

In 2011 shortly after PF came to power BOZ slashed its reserve ratios from 8% to 5% to cut the cost of borrowing. Now with inflation threatening to run out of control, it has put it back up to 8%. At the same time BoZ has now capped lending rates from commercial banks at 18.35%. It appears BoZ may be worried that lending costs going up.

The constant changes are not helpful. Bankers are not happy with capping rates either. It certainly won't comfort those who worry that the current government is attracted to price controls in many different shades.

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