Sat, 10 Feb 2018 10:47:30 +0000
By MAILESI BANDA
STANBIC Bank has predicted a drop in interest rates by the Bank of Zambia in the first half due to subdued inflation and stable exchange rates.
According to Stanbic Africa Local Markets Monthly economic review for December 2017, after touching a low of K8.80 in 2017, the Kwacha exchange rate ended the year at K10.00 to the dollar, with the local unit depreciating on the back of improved business activity and associated imports, according to the bank.
The move has been said to primarily be driven by agricultural companies ahead of the farming season starting in October and a boost for construction companies who received arrears payments from the government.
However, sluggish business activities at the start of 2018 have left the Kwacha trading just below its 100-day moving average at USD per K9.80 and left it poised for further gains.
The US dollar remains weak globally, supporting commodity prices including copper, which remains above $7,000 per tonne. A weaker greenback also looks set to remain supportive of the local unit.
Meanwhile, the Bank of Zambia is still in an easing cycle after cutting the Business Process Reengineering (BPR) and Statutory Reserve Requirement (SRR) by 525 and 1000 basis points (bps) respectively in 2017. The November cut came as a surprise to the market and resulted from the persistently elevated average lending rate across banks.
Despite the cuts in SRR and BPR, the average bank lending rates only dropped from 29.41 percent in January 2017 to 25.57 percent in November. This is because government continues to crowd the private sector credit extension through excessive borrowing.
