• This will ultimately increase the cost of doing business.
• It will also reduce liquidity in the economy.
• The move is good in terms of controlling the macroeconomic environment.
An Economist says Bank of Zambia’s decision to raise the Monetary Policy Rate (MPR) from 9 to 9.25 percent will result in an increase in the cost of borrowing, making it expensive for ordinary citizens.
Speaking in an interview with Money FM News, Mambo Phiri said this will ultimately increase the cost of doing business and result in reduced liquidity in the economy.
Mr. Phiri however stated that the move is a step in the right direction in terms of controlling the macroeconomic environment but will restrict the amount of money supply in circulation.
“The adjustment ideally is going to increase the cost of borrowing meaning even the citizens when they want to borrow funds it will become expensive, when borrowing is expensive, it means the cost of sunning businesses will increase.”
“This also means we are going to restrict the amount of liquidity in the economy, the move in terms of controlling macroeconomic fundamentals may be good but the challenge is that we are restricting the amount of liquidity in the market,” Mr. Mambo stated.
He noted that the country is coming from a situation where 2022 Constituency Development Fund (CDF) was not fully implemented in most constituencies, hence there were some gaps in terms of liquidity that was circulated in the informal sector.
“So if again Bank of Zambia has increased the rate it means that we are restricting the amount of money that can get into the economy as a result, the cost of doing business will drastically increase,” he noted.
Bank of Zambia’s Monetary Policy Committee has raised the Monetary Policy Rate by 25 basis points to 9.25 percent from 9.0 percent, underpinned by the projection that inflation will increase and remain above the target range of 6 to 8 percent in the first quarter of 2024.