Bank of Zambia governor Dr Denny Kalyalya has attributed the recent sharp depreciation of the kwacha against the US dollar to the emergency importation of electricity from South Africa to cushion the severe shortages in the country.
And the central bank’s Monetary Policy Committee’s (MPC) has increased the policy rate to 11.50 per cent from 10.25 per cent, an increase of 125 basis points, a move it says will help ease the country’s economy problems.
He told a media briefing today that the kwacha was under severe pressure this month.
“The kwacha came under severe pressure such that it moved quite quickly to K14 per dollar. With constant load-shedding, there was a lot more use of fuel, there continued to be pressure. Then, there was the issue of imports of fertilizer; then, there was this announcement that Zesco would also be importing power. When that came in, it just hastened the pressures that were already in the market,” he explained.
The governor has also said the country’s gross domestic product (GDP) growth for 2019 is expected to be below two per cent.
“If things don’t pick up, we may end the year at less than two per cent, that’s very low. It calls for us to reflect and figure what we may need to do. We can’t continue to do the same thing, we must question our actions. If you look over the past five years, 4.7 per cent, that’s the average, so we are growing below. That should be a concern to all of us,” Dr Kalyalya said.
He also talked about the poor performance of the country’s key economic sectors and further disclosed that domestic credit drastically reduced during the third quarter of 2019 to 10.1 per cent from 20 per cent in June, 2019 because of reduced lending in all sectors.
“Money supply, with the credit going down, it’s not surprising that money supply didn’t grow because these go hand-in-hand,” Dr Kalyalya said.
He further said if the policy rate was not increased, the country would have been caught up in a situation where “we may have what what we may term as ‘stag inflation’ where we have stagnancy, but inflation is going up, which is a very, very difficult situation to come out of so, we don’t want to get to that”.
“It may seem harsh, but it’s because the conditions are quite tough, and we have to rise up to the occasion to ensure that things don’t spin out of control,” said Dr Kalyalya.