The Bank of Zambia has introduced a Policy Rate to replace the money supply targeting framework which had been in place under the MMD administration. The inaugural benchmarch interest rate has been has been set at 9 percent. With the overnight lending rate to commercial banks due to be set at -/+2.5% of that rate, this suggests a monetary tightening. Presumably this is all part of a march towards explicit inflation targeting.
Introduction of the Bank of Zambia Policy Rate
Tuesday, 3 April 2012
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The establishment of a policy rate is probably premature in Zambia's case. The Central Bank still does not have a tight mechanism to actually use that rate to influence lending and savings rates in the economy. As a result, they may end up having to go back to the traditional monetary framework since the rate framework is likely to be ineffective.
ReplyDeleteYM
LSK
Having a policy rate with no ceiling for margin is as good as just changing the name from base rate to policy rate. The central bank should establish a ceiling if they are to make this whole thing work.
ReplyDeleteJC
I don't understand! HELP!!!
ReplyDeleteWhat is a policy rate?
How does it work?
What effects does it have on our economy both postive and negative.
C
a policy rate is a monetary tool used for controlling inflation,determining day to day liquidity operations and for determining other market rates.
ReplyDelete