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The Bank of Zambia (BoZ) has acted to address Kwacha volatility by adjusting the minimum statutory ratio on both local and foreign currency deposit effect from Monday, February 13, 2023.
This will also apply to government deposits and Vostro account deposits to be increased by 2.5 percentage points to 11.5 percent from the current nine percent.
This is contained in a circular dated February 1, 2023 addressed to all heads of commercial banks signed by BoZ Deputy Governor Francis Chipimo.
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He indicated that the revised statutory ratio of 11.5 percent would be based on the weekly return of selected assets and liabilities as of Wednesday, February 8,2023.
Chipimo said this measure was aimed at addressing the increased volatility in the exchange rate which intensified in December 2022 and has persisted in 2023.
He said this would safeguard stability of the foreign exchange market.
Chipimo pointed out that the exchange rate had come under sustained depreciation pressure despite the Central Bank support to market through the sale of foriegn exchange proceeds, mostly from mining companies.
“The market has been characterized by weak foriegn exchange supply amidst strong demand by market players for various purposes, including critical imports of fuels, medicines and agriculture inputs,” Chipimo said in a circular made available to Zambia Monitor on Thursday.
He said the trend, if unaddressed, had the potential to undermine the emerging stable macroeconomic environment.
“The Bank of Zambia is mindful of attendant risks to this action but deems the overarching potential benefits of stabilizing the foriegn exchange market at this point, outweigh perceived adverse risks to the economy,” Chipimo said.
He said in a memo that the Central Bank would continue to closely monitor the developments in the macroeconomic environment and in particular the financial market.
Chipimo said BoZ would take appropriate action as and when the need arise in line with the Bank’s objectives of price and financial stability.
“At any rate, the Bank will review the measure by June 2023,” he said.
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