BoZ to tackle high exchange rates

By MAIMBOLWA MULIIKELELA –
THE Bank of Zambia (BoZ) is expected to undertake broader economic policy measures to help stabilise exchange rates.
BoZ said in order to stablise exchange rates under the current liberal foreign exchange regime over a long-term, broader economic policy measures have to be undertaken.
Giving a brief on the depreciation of the Kwacha, the Central Bank said deliberate industrial production in various sectors of the economy and trade policies supported by a stable macro-economic environment, would help to form the basis of achieving and sustaining a stable and competitive exchange rate system.
BoZ further highlighted that the country would continue to diversify its exports away from copper and that, Non-Traditional Exports (NTEs) now stand at US$3.3 billion which accounted for 31 per cent of the total exports in 2013 compared to 27 per cent in 2012.
In a statement made during the Poverty Reduction Budget Support Review meeting in Lusaka, Bank of Zambia said increasing international reserves to at least six months of import from the current level of
four months has to be implemented in the medium to long term.
This will help to maintain macroeconomic stability through the implementation of prudent fiscal and monetary policies and as well as enhance its contribution to the mining sector.
The Central bank has since tightened the monetary policy consistent with the attainment of the inflation target of 6.5 per cent for 2014.
In view of the measures implemented by the Central bank, the exchange rate of the Kwacha against the United State dollar showed signs of stabilising around K6.2 against the dollar as at June 17, 2014.
Tight liquidity conditions have resulted into higher interest rates with adverse implications for Small and Medium Enterprises (SMEs) and this adversely affected the banking sector as lending rates went up.
Further, the financial position of banks was being negatively affected by the capping of interest rates.
The Central bank therefore decided to increase the interest rate cap for banks from 21 per cent to 28 per cent.

Times of Zambia