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The Central Bank of Zambia has been cautioned to use the Statutory Reserve Ratio instrument in meagerly manner as it has potential to cause economic havoc.
This is according to former Bank of Zambia Governor Dr, Jacob Mwanza.
He explained at the launch of the Monetary Policy Report and Stakeholder Engagement in Lusaka on Monday that if not used carefully, it could impact prospects of economic growth.
Read more: Zambia’s central bank hikes statutory reserve ratio to thwart Kwacha fall, inflation
This, he said, might hit the financial sector directly by squeezing credit.
“The instruments at your disposal are very sharp and I think the sharpest of them all is statutory reserve. Statutory Reserve hits financial institutions very directly and off course the consequences of that is that you expect credit squeeze to come in and that could impact prospects of economic growth.
“You need to use this instrument, it is the sharpest of all the instruments at your disposal, in a very sparingly manner. The recent increase in statutory reserve was justified but the extent is, which worries me a little bit, is that the basis for deciding on a jump of 900 basis at one goal?” he asked.
He further wondered: “What drives Monetary Policy Committee (MPC) to make such a huge jump at once? Which might also have negative implications of the growth of the economy.”
In a move seen as a desperate attempt to thwart the free-fall of Kwacha and rising inflation, the Central Bank hiked the Statutory Reserve Ratio by nine percent to 26 percent.
BoZ Deputy Governor –Operations, Francis Chipimo, said in a circular that with effect from February 5, 2024, the minimum statutory reserve ratio would increase to 26 percent from 17 percent respectively.
“The BoZ wishes to advise all commercial banks that with effect from February 5, 2024 that the minimum statutory reserve ratio on both local and foreign currency deposits will be increased by nine percent to 26 from 17 percent,” Chipimo stated.
In terms of compliance, Chipimo stated that the revised statutory reserve ratio would be based on the weekly return of selected assets and liabilities as of Wednesday, January 31, 2024.
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