monetary policy statement - presentation feb 2016
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MONETARY POLICY COMMITTEE STATEMENT
FOR
FIRST QUARTER 2016
Governor’s Presentaton to t!e Me"a
12t! Fe#r$ar%& 2016
Bank of Zambia
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INTRO'UCTION
The Monetary Policy Committee met on 11th February, 2016. to review evelo!ment" in the #ourth
$uarter o# 201% an ecie on the monetary !olicy "tance #or the #ir"t $uarter o# 2016.
The "tructure o# thi" !re"entation i" a" #ollow"&
1. 'verview
2. (lobal economic evelo!ment"
). Conuct o# monetary !olicy
*. +evelo!ment" in the ome"tic economy
%. Macroeconomic outlook
6. +ecie on the monetary !olicy "tance
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O(ER(IE)
i$uiity conition"
ti-htene #ollowin-monetary !olicy
mea"ure" taken to
are"" ri"in-
in#lationary !re""ure"
an "tabilie thee/chan-e rate.
The overni-ht
interbank rate ro"e
"har!ly above the BoZPolicy ate corrior
an overni-ht lenin-
rate.
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O(ER(IE)
The wacha a!!reciate a" the #orei-n e/chan-e market "tabili"e
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3MF 4anuary 2016 5' e"timate" -lobal -rowth to have ecline to ).17 in 201% #rom ).*7in 201*.
8vance countrie" an the uro area e/hibite "ome recovery while emer-in- marketeconomie" !articularly China, "ub9:aharan 8#rica ;::8< an evelo!in- economie" re-i"tere
weaker -rowth.
The "lowown in -lobal -rowth i" ue to&
◦ow commoity !rice" ;"ee Table 1
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GLO*AL ECONOMIC 'E(ELOPMENTS
Crue oil !rice" continue to ecline, #allin- by 1>.*7 in the #ourth $uarter.
Co!!er !rice" al"o ecline by >.67.
:ome a-ricultural commoity !rice" al"o ecline ue to e/ce"" "u!!ly.
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3n ::8, -rowth i" e"timate to have ecline to ).%7 #rom %.07in 201*, mainly ue to&
a< +eclinin- oil an metal !rice"= an,
b< +e!re""e #orei-n irect inve"tment inuce by "lowownin the Chine"e economy an a "tron-er ?: ollar.
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GLO*AL ECONOMIC 'E(ELOPMENTS
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3n -lobal #inancial market", ::8 an Zambian urobon yiel" ro"e on
eterioratin- #unamental".
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GLO*AL ECONOMIC 'E(ELOPMENTS
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GLO*AL ECONOMIC 'E(ELOPMENTS
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3n 2016, -lobal economic activity i" !ro@ecte to !ick u! to ).*7,
re#lectin- &
:tron- !rivate con"um!tion "u!!orte by -rowth in @ob"in avance economie", !articularly, the ?:.
3m!rovement" in #inancial conition", inve"tment an
-overnment "!enin-.
(rowth in mo"t :ub9:aharan 8#rican countrie" i" antici!ate to-raually !ick u! in 2016 a" countrie" a@u"t to lower commoity
!rice" an hi-her borrowin- co"t". 11
GLO*AL ECONOMIC 'E(ELOPMENTS
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'E(ELOPMENTS IN T+E 'OMESTIC ECONOMY
F,$re 1- Po./% Rate Corr"or an" Inter#an Rate
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Monetary !olicy #ocu"e on the achievement o# the in#lation tar-et o# >.07 #or 201%.
+urin- the #ourth $uarter, the Policy ate wa" rai"e to 1%.%7 #rom 12.%7.
3ncrea"e in the Policy ate wa" motivate by&
o :i-ni#icant increa"e in in#lation to 1*.)7 in 'ctober #rom >.>7 in :e!tember 201%
o levate in#lation outlook #or 2016.
Followin- a #urther ti-htenin- o# monetary !olicy, which inclue re"trictin- acce"" to the
overni-ht lenin- #acility ;'F< to once a week, the interbank rate ro"e "har!ly an e/ceee
both the Policy ate an the 'F rate towar" the en o# the $uarter ;"ee Fi-ure 1 below
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'E(ELOPMENTS IN T+E 'OMESTIC ECONOMY
8" a con"e$uence o# ti-ht li$uiity conition", the overni-ht rate remaine
above the Policy ate throu-hout the $uarter.
The Bank re"i"te brin-in- the interbank rate back into the Policy ate
corrior a" in@ectin- li$uiity into the market ri"ke tri--erin- volatility o#
the e/chan-e rate, an hence in#lationary !re""ure".
The ti-ht li$uiity conition", which were al"o !artly the re"ult o# Bank o#
Zambia !roviin- o# #orei-n e/chan-e "u!!ort to the market com!elle bank"
re"ort to the 'F an ei"count winow #or li$uiity.
Con"e$uently, Trea"ury bill rei"count" an the amount o# #un" borrowe on
the 'F "oare ;"ee Fi-ure" 2 an )
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'E(ELOPMENTS IN T+E 'OMESTIC ECONOMY
F,$re 2- *ans’ A//ess to OLF F,$re - T3#.. Re"s/o$nts
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'E(ELOPMENTS IN T+E 'OMESTIC ECONOMY
Ti-ht li$uiity conition"
were al"o re#lecte in a
*07 increa"e in interbank
train- to 26.* billion a"
bank" looke to meet their
li$uiity re$uirement"throu-h the interbank
money market.
F,$re 4- Inter#an *an A/tvt%
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'E(ELOPMENTS IN T+E 'OMESTIC ECONOMY
Govern5ent Se/$rtes Maret
Ti-ht li$uiity level" re"ulte in the ecline in eman #or (overnment
"ecuritie" ;"ee Fi-ure *a7 in thir $uarter.
Con"e$uently, yiel rate" on Trea"ury bill" -enerally ecline, with
the com!o"ite rate #allin- to 20.>7 #rom 21.>7 ;"ee Fi-ure %
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'E(ELOPMENTS IN T+E 'OMESTIC ECONOMY
F,$re 4a- Peror5an/e o Govern5ent Se/$rtes A$/tons
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'E(ELOPMENTS IN T+E 'OMESTIC ECONOMY
F,$re 4#- Govern5ent Se/$rtes Ye." Rates 789
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20
'E(ELOPMENTS IN T+E 'OMESTIC ECONOMY
F,$re :
Forei-n !ort#olio inve"tment" in (overnment "ecuritie" continue to ecline #rom the
!eak reache at the en o# 4une 201%, #allin- 267 by en9+ecember 201%.
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Fore,nE;/!an,eMaret
The wacha a!!reciate a" the #orei-n e/chan-e market "tabili"e
'E(ELOPMENTS IN T+E 'OMESTIC ECONOMY
8-ain"t the ?: +ollar, the
wacha a!!reciate by
A.67 to 10.A at en9+ecember #rom the level
o# 1).> at en9
:e!tember.
The wacha al"o #irmea-ain"t other ma@or train-
!artner currencie".
F,$re 6
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'E(ELOPMENTS IN T+E 'OMESTIC ECONOMY
The a!!reciation o# the wacha wa" ue to monetary !olicy mea"ure"
unertaken by the Bank to curb volatility ra!i e!reciation o# the wacha,which inclue&
• 3ncrea"in- the Policy ate to 1%.%7 #rom 12.%7=
• e"trictin- acce"" to the 'F winow by bank" to once !er week=
• BoZ !rovi"ion o# #orei-n e/chan-e "u!!ort to the market=
•) Publication o# iniviual bankD" interbank rate" to the !ublic= an
•) ei-htene monitorin- o# commercial bank" activitie", an "tren-thenin-
the market coe o# conuct.
'E(ELOPMENTS IN T+E 'OMESTIC ECONOMY
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F,$re
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+eman #or #orei-n e/chan-e #rom the !ublic ro"e a" re#lecte in an increa"e in
commercial bank" net "ale" to the !ublic
'E(ELOPMENTS IN T+E 'OMESTIC ECONOMY
F,$re =
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'E(ELOPMENTS IN T+E 'OMESTIC ECONOMY
Mone% s$.% an" 'o5est/ Cre"t
• Money "u!!ly -rowth "lowe own to 1.%7 #rom on a $uarter by $uarter
ba"i" #rom a -rowth o# 26.)7 in the thir $uarter ;"ee Fi-ure 11
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'E(ELOPMENTS IN T+E 'OMESTIC ECONOMY
F,$re 10- 'eve.o5ents n Mone% S$.%
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'E(ELOPMENTS IN T+E 'OMESTIC ECONOMY
F,$re 11- Cre"t Gro>t! an" Se/tora. Contr#$ton
Public nter!ri"e"
Private nter!ri"e"
Total +ome"tic Creit
ou"ehol"
Eon9Bank Financial 3n"titution" ;EBF3<
(overnment
920 910 0 10 20 )0 *0 %0
Se31: 'e/31:
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Economic activity generally remained constrained …
Natona. O$t$t
eal (+P -rowth #or 201% i" !ro@ecte to be ).67 com!are to the tar-et o#
>.07 on account o#&
• 8ver"e weather conition", which a##ecte the 201*1% a-riculture
!er#ormance=
• Continue weakne""e" in the -lobal economy, re#lecte in a ecline in
co!!er !rice"=
• :ubue !er#ormance o# the minin- "ector, which al"o a##ect -rowth o#
"ervice" an manu#acturin- "ector"=• ei-htene !ower rationin- in the "econ hal# o# the year= an,
• /chan-e rate e!reciation, increa"e in #uel !rice" G i-h co"t o# im!orte
in!ut" an !rouction co"t".
REAL SECTOR ACTI(ITY
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FISCAL POLICY
Preliminary ata inicate that #i"cal e#icit at 2.17 o# (+P,wiene mar-inally in the #ourth $uarter
Thi" re#lect" hi-her e/!eniture" on account o# the e!reciation o#
the e/chan-e rate an hi-her "ub"iy !ayment"
The im!lementation o# the Trea"ury "in-le account i" e/!ecte to
contribute to im!rove #i"cal mana-ement an more e##icient
im!lementation o# monetary !olicy
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INFLATION
Inflation accelerated to 21.1% in December from 7.7% in September 2015…..
The hi-her in#lation wa" mainly a" a re"ult o#&
• Pa""9throu-h e##ect" o# the "har! e!reciation in the e/chan-e rate in the thir
$uarter=
• i-h !rouction co"t" inuce by !ower rationin-, increa"e in electricity tari##",
an=
• ow "u!!ly o# "ome #oo item", which ke!t #oo in#lation at elevate level".
The"e #actor" cau"e #oo an non9#oo in#lation to accelerate to 2*.A7 an 1>.17
in +ecember 201% #rom A.17 an >.)7 in :e!tember 201%, re"!ectively ( "ee
Fi-ure 16 .
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INFLATION
F,$re 14- 'eve.o5ents n In.aton
*12>%
*1)06
*1))*
*1)6%
*1)%
*1*26
*1*%6
*1*A>
*1%1A
*1%*A
*1%>
*160
*16*0
*16>1
*16
*1>)0
*1>60
*1>1
*1A21
*1A%2
*1AA)
*11)
*1**
*1>*
*200%
*20)6
*206*
*20%
*212%
*21%6
*21A6
*221>
*22*A
*22>A
*2)0
*2))
0
%
10
1%
20
2%
)0
'verall 3n#lation Foo in#lation Eon9#oo in#lation
Per/ent
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MACROECONOMIC OUTLOO?
eal (+P -rowth i" e"timate to have ecline to ).67 in 201%, the lowe"t
level recore over the !a"t 10 year".
3n 2016, -rowth i" e/!ecte to mar-inally im!rove to ).>7, an recover
-raually towar -rowth rate" o# aroun 6.%7 in the meium9term.
The ri"k" to the -rowth outlook are "i-ni#icantly wei-he to the own"ie in
the "hort9run an inclue&
Poor rain#all !attern" in the 201%16 "ea"on=
Continue !ower rationin-= an,
ow co!!er !rice"
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MACROECONOMIC OUTLOO?
3n#lation i" e/!ecte to remain hi-h, !articularly in the #ir"t hal# o# 2016, but
ecline "har!ly #rom the thir $uarter an tren towar" "in-le i-it level" bythe en o# 201>.
The ri"k" to the in#lation outlook are "kewe to the u!"ie, an inclue the
#ollowin-&
ow -lobal eman #or commoitie", which will aver"ely a##ect co!!er
e/!ort earnin-" with con"e$uence" #or e/chan-e rate "tability=
lectricity rationin-, which will kee! the co"t o# !rouction at elevate
level"= an,
i-h #oo !rice", which may be wor"ene by rou-ht weather conition" in
mo"t a-riculture !rouctive !art" o# the country.
MPC 'ECISION
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MPC 'ECISION
The MPC ecie to maintain the Policy ate at 1%.%7.
The Committee took the #ollowin- #actor" into account in eciin- to
maintain the Policy ate at 1%.%7&
The e##ect" o# the current monetary !olicy "tance, which i"con"iere to be ti-ht an "till takin- e##ect.
ey river" o# ob"erve in#lation, which inclue #oo !rice" an the
e/chan-e rate.
-rowth o# the economy
Financial "tability
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END OF PRESENTATION…THANK YOU!!!
ank of Zambia