Dear Editor,THE Bank of Zambia’s Monetary Policy Committee on Wednesday increased the Monetary Policy Rate (MPR) by 50 basis points from 8.5 percent to nine percent, ostensibly in the quest to quell inflation by increasing the cost of borrowing.I have argued before and l will argue again that the idea of increasing the cost of borrowing as a tool to arrest inflation is archaic and ineffective, for a number of reasons.Firstly, Zambia’s inflation is not demand-pull, but rather it is cost-push. The idea of increasing the cost of borrowing as a tool for addressing inflation is premised on the assumption that when the cost of borrowing is high, fewer economic players will borrow and therefore there will be reduced buying power which will reduce demand and therefore the prices.Apart from assuming that the inflation that you have is demand-pull, there is also an assumption that credit constitutes a significant portion of the buying power of […]
