THE EFFECT OF THE MONETARY POLICY RATE (MPR) ON THE COST LIVING AND DOING BUSINESS
The Bank of Zambia (BOZ) monetary policy committee at its meeting held on May 13-14, 2024, decided to increase the Monetary Policy Rate (MPR) by 100 basis points to 13.5 percent, from 12.5 percent. The Nation may wish to know that this is the sixth policy increase of the MPR in 12 months.
This is unprecedented bearing in mind the negative effects on ordinary Zambians and local business.By definition the monetary policy is the control of the quantity of money available in an economy and the channels by which new money is supplied.
The Bank of Zambia (BOZ) has been undertaking these hikes in a bid to bring inflation down to their targeted single digit figures.It is a fact that Bank of Zambia’s contractionary policy increases interest rates and limits the money supply to slow growth and decrease inflation.
WHAT ARE THE EFFECTS OF THE INCREASED MPR ON ORDINARY CITIZENS, LOCAL ZAMBIAN BUSINESSES AND THE ECONOMY?
It is worth noting that Zambians are already experiencing the devastation of the increased monetary police rate since President Hakainde Hichilema and his dawn administration took over the reins of Government in August, 2021 such as:
1. Less money in circulation/market. It becomes more difficult for individuals to find and spend money.
2. Prices of basic goods and services such as mealie meal, fuel/transport of just general basic essentials rise. This makes the majority poor Zambians across the country to not afford these basics.
3. Reduces the purchasing power of money. For, the same K100 that used to buy 5 litters can now buy only 3 liters of petrol.
4. Low business sales for local businesses such as marketeers, vendors, salons, barbershops, tailors, carpenters, welders, bus drivers, traders, tutembas etc.
5. Increase in the MPR leads to higher borrowing costs for businesses and individuals. This invariably slows down economic activity.
6. Increased cost of credit, making loans more expensive for consumers (Individuals or businesses). For those with loans expect a text message from your bank or shylock.
7. Higher interest rates can deter investment as the cost of borrowing rises.
8. Businesses postpone or scale back investment projects, leading to reduced capital expenditure and potentially slower economic growth in the medium to long term.
9. Increasing the monetary policy rate (MPR) slows economic growth and even increases unemployment.
WHY DOES THE BANK OF ZAMBIA (BOZ) INSIST ON RAISING THE MPR WHEN ITS CLEARLY HURTING ZAMBIANS AND THE ECONOMY?
As stated, this is the 6th such intervention in the last 12 months by the Bank of Zambia (BOZ). Have the previous interventions achieved the desired results? If not, why are we continuing to do what we have always done? What is the motive of raising the MPR?
It is clear that the economic script of our country is not being written by President Hakainde Hichilema and his Government. The International Monetary Fund and President Hichilema’s foreign friends are doing that. President Hichilema’s economic policies lack a human face reminiscent of the structural adjustments, SAP’s of the 90’s.
President Hichilema and his government live in a make believe world. They exaggerate their successes even when the majority of our people are experiencing starvation. To satisfy their personal egos and create a front that they are smart, they need to constantly fabricate stable economic fundamentals unfortunately, fundamentals such as the exchange rate are exposing them.
PROPOSED SOLUTIONS IN PART
The United Kwacha Alliance-UKA is of the view that, bearing the depressed state of our economy, it would be more prudent to loosen the parameters and allow inflation to grow beyond the targeted 6-8%.
There are actually economies that have grown with 20 to 40% inflation. Zambia is already a small economy with more than 60 percent of the citizens living on poverty.
a) Flood the economy with money and let citizens do business, pay local suppliers and stop treating anyone who did business with the previous Government as a thief.
b) Lower interest rates. This will result in a reduced cost of capital which in turn will provide a more conducive economic environment and which in turn will allow the economy to grow.
c) Lower the cost of doing business for local businesses.
d) Expand of the private sector through radical economic policies
e) Do away with outrageous tax holidays given to mining companies and multinational corporations operating in the Country.
f) Lower taxes so that individuals and businesses can spend more.
Modern economies grow by spending; through citizens spending, households spending, business spending and increased economic activity.
Thank you very much.
Have to laugh at the extent UKWA wants mislead people about what these measure mean to a common man.
Read what people who are qualified in the area are saying. As an Accountant is sad that former BBZ board chair person would parade herself as being a part of these lies.
Increase in the rate means the cost of
BORROWING has increased. Which common man borrows from these banks anyway?
The interest rate on Saving will increase. Money supply will reduce. So if money supply is reduced. Wont infaltion reduce? We learnt in Civics back in the day that the definition of inflation is more money chasing few goods. So if money supply is reduced then inflation will drop. So what are these theiving cheats trying to lie to us about?