The Monetary Policy Committee (MPC) has reduced the Monetary Policy Rate by a further 125 basis points to 8 %.
Bank of Zambia Governor Dr. Denny Kalyalya said the committee arrived at the 8 % rate in order to safeguard the stability of the financial sector and people’s livelihood as a result of effects of Covid-19 pandemic.
“Although projected to remain above the upper bound of the 6-8 percent medium term target rage the inflation is expected to steadily decline and reach the upper bound by the end of the forecast horizon of first quarter,” Dr Kalyalya said.
“This is premised on the expected moderation of food prices due to the improvements in the supply of food items following the notable increase in crop n production from the 2019-2020 farming season.”
Dr Kalyalya added that the committee also noted that significant worsening in economic conditions over the second quarter and the much weaker growth prospects in 2020 than earlier anticipated.
“Urgent macroeconomic adjustments measures underpinned by the reorientation of expenditure to address the adverse impact of the pandemic to save the peoples’ lives, fiscal consolidation and the restoration of debt sustainability over the medium term, remain imperative to promote sustainable development,” the Governor said.
Dr. Kalyalya also said the country’s economy is projected to contract by 4.5 percent, stating that the increase in Covid-19 cases has impacted negatively on the domestic economy due to businesses being closed especially in the tourism sector.
He also announced that outstanding stock of Government securities increased by 18.4 percent to K102.5 billion reflecting mainly government financing needs amidst reduced revenuers.
“Activities increased in in the security market , leading to raising subscription rates for treasury bills and government bonds to an average of 168 percent and 39.0 percent from 84.0 percent and 27.0 percent in the first quarter respectively,” he said.
He explained that in this regard funds rose from the auctions significantly increased resulting in a surplus of K3.9 billion at a cost in the second quarter.
Dr Kalyalya noted that auctions were augmented by issuance of additional securities by way of private placements.
“At the end of June 2020, government securities held by non-residents rose by 4.2 percent to K13.5 billion, representing 13.2 percent of the total securities,” he said.