November 1, 2011 / 3:49 PM / 6 years ago

Zambia's c.bank slashes reserve ratios

LUSAKA (Reuters) - Zambia’s central bank slashed its reserve ratios on Tuesday to cut the cost of borrowing for commercial banks and consumers in a bid to stimulate economic growth in Africa’s biggest copper producer.

The Bank of Zambia (BoZ) said the reserve ratio for both local and foreign currency deposits would be 5.0 percent from 8 percent previously, while the core liquid assets ratio would go down to 6 percent from 9 percent.

The bank also said it would continue to work towards introducing a policy rate as a benchmark for determining interest rates.

Since his surprise election in September, President Michael Sata has made it clear he wants to cut the cost of credit to bring more Zambians into the economy, although investors have worried it could lead to higher inflation.

The BoZ said the cut in reserve limits should inject 700 billion Zambian kwacha into the banking system, but analysts said it was not overly aggressive easing given that the original 8 percent was high by African standards.

For instance, Kenya’s central bank said on Tuesday it was raising its cash reserve ratio by 50 basis points to 5.25 percent from December 12 as part of an concerted effort to control runaway inflation.

“We know that they want to reduce bank lending rates, and when you have a very high cash reserve ratio, it does add to the cost of doing business,” said Leon Myburgh, an Africa analyst at Citibank in Johannesburg.

“It reflects policy easing, but maybe 8 percent was a bit too high to start off with.”

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