THE Bank of Zambia has increased the Statutory Reserve Ratios (SRR) applicable on commercial banks’ Kwacha and foreign currency deposit liabilities.
BoZ stated that effective December 23, 2019, commercial banks would be required to hold nine per cent of their deposit liabilities as statutory reserves with the Bank of Zambia from the current level of five per cent.
It stated that in addition, banks would be required to maintain the statutory reserve requirements on a daily basis as opposed to the current weekly compliance basis.
“The latter measure is with immediate effect. The change in the statutory reserve requirements has been necessitated by the threats to inflation that recent developments in the foreign exchange market pose. In particular, this development imposes significant costs to the economy and the public at large through its adverse impact on inflation, which, if left unchecked, will eventually erode citizens’ incomes and welfare,” it stated.
BoZ stated that this was more so for individuals who had fixed incomes and have no means or mechanisms of hedging themselves against these shocks.
“The exchange rate has 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. However, 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,” BoZ stated. “The just announced measures, together with the raising of the Policy Rate to 11.5 per cent and the rate for the Overnight Lending Facility (OLF) to 28 per cent last month, are aimed at restoring and fostering stability of the foreign exchange market. This is imperative for the Bank to achieve its inflation objective and support macroeconomic stability in general.”
It stated that to ensure that macroeconomic stability was attained, BoZ was appealing to all stakeholders, public and private alike, to perform their respective duties to the fullest extent possible.
“For the Bank, it shall continue to monitor developments in the macroeconomic environment and stands ready to take any other action as it deems appropriate,” stated BoZ.