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Zambia cbank raises overnight rate, move seen aimed at propping kwacha
June 2, 2014 / 3:16 PM / in 4 years

Zambia cbank raises overnight rate, move seen aimed at propping kwacha

LUSAKA, June 2 (Reuters) - Zambia’s central bank said it was increasing its overnight lending rate for commercial banks to 10 percentage points above the benchmark policy rate from 6 percentage points, in what traders said was another bid to prop up the ailing local unit.

In a circular to banks seen by Reuters on Monday, the Bank of Zambia also said it would now subject government local and foreign currency deposits to statutory reserve requirements, currently at 14 percent.

“These measures will further tighten liquidity on the market because in the past government deposits were not subject to statutory reserves,” one commercial bank trader said.

“The adjustment of the overnight lending facility rate ... means the cost of funding from the central bank as lender of the last resort will go up. This should ultimately support the kwacha.”

The kwacha jumped nearly 4 percent to 6.5500/6500 against the dollar on Monday, pulling away from recent all time lows mainly caused by the weak price of copper, of which Zambia is Africa’s second largest producer. (Reporting by Chris Mfula; Writing by Stella Mapenzauswa; Editing by Helen Nyambura-Mwaura)

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