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The Bank of Zambia’s decision to reduce the statutory reserve ratio on Kwacha deposits could increase liquidity in the financial system and support private sector growth, economist Lubinda Haabazoka has said.
In an interview with journalists on Tuesday in Lusaka on the reduction of the reserve requirement from 26 percent to 21 percent, effective August 3, 2026 by the central bank, Haabazoka said the move would increase the funds available to commercial banks for lending and investment.
However, he cautioned that increased liquidity would not automatically translate into higher credit for businesses and households.
He said banks would continue assessing borrowers based on creditworthiness, while businesses would need viable projects and households would have to demonstrate their ability to repay loans.
Read more: Bank of Zambia cuts reserve ratio by 5% to boost liquidity
Loan demand would also determine how much of the additional liquidity was converted into actual lending.
“If businesses remain hesitant to invest despite greater liquidity, the full impact may take time to materialise,” Haabazoka said.
He said banks could also opt to invest part of the additional liquidity in Government securities if they offered more attractive risk-adjusted returns than lending to the private sector.
“The policy therefore creates the capacity to lend. Whether that capacity becomes actual lending depends on both banks and borrowers,” he said.
Haabazoka said the reserve requirement cut indicated that the central bank considered inflationary pressures sufficiently contained to allow monetary conditions to ease without compromising macroeconomic stability.
He added that Zambia’s stronger external position had provided policymakers with greater room to support domestic liquidity.
International reserves had recently reached approximately US$6.7 billion, providing a stronger buffer against external shocks and supporting the central bank’s efforts to manage excessive volatility in the foreign exchange market.
Haabazoka said the policy should be viewed alongside broader improvements in the economy, including stronger foreign exchange reserves, improved investor confidence, progress in debt restructuring, increased mining investment, improved fiscal credibility and greater exchange rate stability.
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