Govt policy on cash reserve ratio creating monetary squeeze, hurting families —Haabazoka

Ex-Economic Association of Zambia (EAZ) president, Lubinda Haabazoka, has predicted that households will struggle to afford basic meals as there would be scarcity of money in the economy.

This followed the decision undertaken by the Bank of Zambia (BoZ) to squeeze liquidity in circulation by raising its cash reserve requirement by 300 basis points to 14.5 percent, both on foreign and local currency in a move to curb inflationary pressure.

This monetary tightening move also comes in the wake of a persistent Kwacha slide.

The Kwacha is currently trading around 22 per United States dollar while inflation is at 12.6 percent.

Reacting to this measure, Haabazoka, in an interview, on Tuesday noted that the decision would starve the economy of resources with commercial banks not having money to lend out.

“Unfortunately, the main cause of the weakening of the Kwacha has nothing to do with money supply in the economy because there is no liquidity in the economy. There is no money, households do not have enough money in their pockets and businesses are being affected too.

“As such the contraction measure that has been made by the Government will definitely have a negative impact on the ability of households to afford basic meals and also for businesses to find demand for their goods,” he stated.

Haabazoka emphasised that this measure would not yield any positive results as Zambia currently did not have sufficient forex inflow.

“What we needed to do is to treat the actual cause of the problem which is the runaway Kwacha. It is running away because there is no forex. Business disruption in the last two years and the major player in the industry have left and also corruption fight has sent jittery waves in the private sector.

“This measure will squeeze many businesses that have access to loans. It is a contraction measure that will not yield any positive results, what we need now is an inflow of forex,” he concluded.

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