Home Southern Africa The Bank of Zambia push up reserve ratio by 2.5%

The Bank of Zambia push up reserve ratio by 2.5%

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The Bank of Zambia has increased the statutory reserve ratio with effect from Monday, 13 February 2023 in a bid to support the weakening Kwacha. In a circular to commercial banks issued by Deputy Bank Governor-Operations Francis Chipimo, the Central Bank has increased statutory reserve ratios by 2.5 percentage points to 11.5 percent from the current 9.0 percent.

The Bank of Zambia has increased the statutory reserve ratio with effect from Monday, 13 February 2023 in a bid to support the weakening Kwacha. In a circular to commercial banks issued by Deputy Bank Governor-Operations Francis Chipimo, the Central Bank has increased statutory reserve ratios by 2.5 percentage points to 11.5 percent from the current 9.0 percent.

The revised statutory ratio of 11.5 percent will be based on the weekly return of selected assets and liabilities from next Wednesday 8th February 2023. This is aimed at addressing the volatility in the exchange rate which intensified in December 2022 and has persisted in 2023. It also hopes the measure will help safeguard the stability of the foreign exchange market. The foreign exchange market has come under sustained depreciation pressure despite its support to the market through sales of foreign exchange proceeds, mostly from mining companies. The market has been characterised by weak foreign exchange supply amid strong demand by market players for various purposes including critical imports of fuel, medicines, and agricultural inputs. If the trend is left unchecked, it has the potential to undermine the emerging stake macroeconomic environment. The Bank is mindful of the attendant risk to this action but deems the overarching potential benefits of stabilising the foreign exchange market at this point, outweigh the perceived adverse risks to the economy.

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The Central Bank will continue to closely monitor developments in the macroeconomic environment and in particular, financial markets and take appropriate action as and when the need arises in line with the Bank’s objectives of price and financial stability. It is anticipated that the Bank will review the measure by June 2023.

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