UPWARD ADJUSMENT OF STATUTORY RESERVE RATIO TO NEGATIVELY IMPACT ZAMBIAN ECONOMY

 



Economist and Business Consultant, Kavenuke Kapila has expressed concerns about the potential negative impact of increasing the statutory reserve ratio on the Zambian economy and the welfare of citizens as it will effectively reduce the amount of money in circulation.

The Bank of Zambia has revised the statutory reserve ratio on both local and foreign currency deposits with the current adjustments effective from February 5th 2024 increasing by 9% points from 17% to 26%.
In an interview with Phoenix Business News, Mr. Kapila notes that the rationale behind this move is to implement a monetary policy aimed at regulating inflation by withdrawing money from circulation and that despite this being one way to address high inflation, the success rate of such a policy is not 100% due to various factors that come into play.
He explains that the potential consequences of increasing the statutory reserve ratio will reduce liquidity and restrict the availability of money in circulation and as a result, ordinary Zambians may face difficulties while businesses will struggle to cope and access funds, including borrowing from banks.
Mr. Kapila however suggests that the high inflation in the country should be addressed at its root cause by focusing on supply-based approach rather than demand-based solutions.
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