The Bank of Zambia (BOZ) has adjusted the statutory reserve ratio (SRR) by 4percent to curb inflationary pressure and the Bankers Association of Zambia (BAZ) fears the move will tighten liquidity in the market. The SRR, which is a proportion of deposits a commercial bank is required to maintain with the central bank in form of liquid assets in addition to the cash reserve ratio, was last year reduced to five percent from eight. The SRR has this time around been adjusted to nine percent as inflationary pressure continues. In a statement issued on Monday evening by the BoZ communications division, the SRR will be applicable to commercial banks, Kwacha & Foreign currency deposit liabilities effective December 23rd 2019. To ensure that macroeconomic stability is attained, we wish to appeal to all stakeholders, public and the private alike, to perform their respective duties to the fullest extent possible. For the central bank, it shall continue to monitor developments in the macroeconomic environment and stands ready to take any other action as it deems appropriate. BoZ said the change in the reserve requirement has been necessitated by the threats to the inflation that recent developments in the foreign exchange currency market pose. “In particular this development imposes significant costs to the economy and the public at large through its adverse impact on the inflation, which, if left unchecked, will eventually erode citizens, incomes and welfare. This is more for individuals who have fixed incomes and have no means or mechanisms of hedging themselves against these shocks, the statement read. The central bank said the exchange rate in recent periods depreciated due to increased demand for foreign exchange related mainly to financing requirements for fertiliser, petroleum and electricity imports. Ordinarily, movements in the exchange rate should fundamentally reflect supply and demand factors. Boz, however, said a consistent movement in a single direction, particularly towards continuous depreciation, tends to trigger defensive mechanisms among businesses and others with the capacity to hedge themselves. The central bank said the announced measures, together with the raising of the policy rate to 11.5 percent and the rate for Overnight Lending Facility (OLF) to 28 percent last month, and aimed at restoring fostering stability of the foreign exchange market. And BAZ chief executive officer Leonard Mwanza said the adjustment will create a tight liquidity situation in the market as commercial banks will now have to square their positions on a daily basis. This will put pressure on the already high cost of funds. BAZ acknowledges the decision by the Bank of Zambia to increase the SRR from 5 percent to 9 percent and given the prevailing market situation, it was inevitable that the Bank of Zambia had to make this tough and painful decision to rein in on the free fall of the Kwacha and to try and stabilise and protect the wider economy. Mr. Mwanza said in a statement. Source: Daily Mail
BOZ ADJUSTS RESERVE RATIO TO 9 PERCENT
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