BoZ Drops Monetary Policy Rate

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The Monetary Policy Committee has cut the policy rate by 225 basis points to 9.25%.

The Committee, during it’s sitting from 18th to 19th May, 2020, took into account the need to mitigate the adverse effects of the COVID-19 pandemic on financial
sector stability, economic activity and ultimately on people’s lives and livelihoods despite projected inflation being higher than the medium-term target range.

Bank of Zambia Governor Dr. Denny Kalyalya told journalists in Lusaka on Wednesday afternoon that the decision was arrived at following significant deterioration in economic activity, with the economy projected to bein a recession in 2020 on account of the COVID-19 virus.

Dr. Kalyalya said the other reason was the need to compliment the broad measures taken by the Bank to support economic activity.

“The Committee calls for strengthened collaboration and concerted efforts by all
stakeholders to effectively deal with the COVID-19 shock and its effects. In thiscontext, the centrality of fiscal and structural reforms that deliver inclusive and sustainable growth cannot be over-emphasised,” he said.

“The outbreak of COVID-19 pandemic is having an unprecedented impact on human life and livelihoods as well as economic activity across the world. In an effort to curb the spread of the virus, governments have responded by implementing several measures, including widespread lockdowns. These haveresulted in the disruption of global supply chains and induced economic contraction. Due to COVID-19, the global economy is projected to contract sharply to -3.0% in2020, but recover to 5.8% in 2021.”

The Bank of Zambia Governor also noted that fiscal pressures are expected to heighten in 2020 as revenue performance is adversely affected by COVID-19 while spending to combat the unprecedented virus rises.

Dr. Kalyalya said the Ministry of Finance estimates revenue reduction of K14.8 billion as a result of the COVIDE-19.

“Additional spending pressures relating to external debt service which have been
exacerbated by the recent sharp depreciation of the Kwacha against the US
dollar. In this regard, the fiscal deficit in 2020 is bound to exceed the 5.5% Budget target,” he added.

Giving an account on foreign reserves, the BoZ boss Indicated that at end-March 2020, Gross International Reserves declined toUS$1.40 billion equivalent to 2.0
months of import cover fromUS$1.45 billion equivalent to 2.1
months of import cover at end-December 2019.

He further said the decline in reserves was moderated by net foreign exchangepurchases amounting to US$144.2 million, of which US$49.7 million wasmineral royalty.

Source: Smart Eagles

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