Optimism ahead, as banks reportedly set to cut lending rates

Commercial banks are expected to lower lending rates by about 250 basis points following the Bank of Zambia’s decision to cut the Monetary Policy Rate (MPR) from 13.25 percent to 10.75 percent.

The rate reduction, announced on Wednesday, is expected to reduce borrowing costs for households and businesses and support increased economic activity.

The Bank of Zambia said the decision was supported by the favourable inflation outlook, with inflation at 6.1 percent and projected to remain within the target range of six to eight percent.

BoZ Governor, Denny Kalyalya, said inflation projections had provided room for the Monetary Policy Committee to recalibrate its policy stance.

In a statement issued on Thursday, the Bankers Association of Zambia (BAZ) said the reduction would be passed on to customers through lower interest rates on loans linked to the MPR, while new loans would also be priced using the reduced rates.

BAZ Chief Executive Officer, Leonard Mwanza, said the banking sector supported the decision, noting that inflation had declined from 6.5 percent in June and 7.1 percent in March.

Mwanza attributed the improvement to the continued appreciation of the Kwacha, lower maize grain prices, the tight monetary policy stance and fiscal consolidation.

“Lower lending rates would improve access to credit and enhance financial inclusion by enabling more borrowers to qualify for financing,” Mwanza said.

He said cheaper credit could also support the Government’s Grow Zambia Agenda by encouraging investment, improving business productivity and stimulating consumer spending.

“The decision taken by the Central Bank to reduce the MPR demonstrates strengthened confidence in improved macro-economic fundamentals and signals the Central Bank’s support for growth,” Mwanza said.

The expected reduction in commercial lending rates could ease financing pressures on businesses and households, while potentially encouraging borrowing for investment, working capital and consumption.

The move also marks a significant shift in the cost of credit following the sharp reduction in the central bank’s benchmark rate.

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