Zambia’s Central Bank to Raise Minimum Mandatory Currency Reserves
Zambia’s central bank has announced its intention to increase the minimum mandatory reserves of both local and foreign currency deposits that commercial banks are required to maintain with the state institution starting next week to counteract the devaluation of the local kwacha currency.
The apex bank stated in a circular that it will raise the statutory reserve ratio for deposits in both local and foreign currencies by 3 percentage points to 14.5%, effective from November 13.
This action is intended to alleviate ongoing pressure on the foreign exchange market and to control inflation, as stated by the Bank of Zambia.
Zambia’s kwacha has experienced a significant 21% decline against the US dollar since the end of June, according to Bloomberg. Globally, only Argentina’s peso has performed worse.
This decline in the currency of the copper-producing nation can be attributed to reduced metal prices and production, alongside the challenges associated with restructuring over $10 billion of external sovereign debt.
In October, Zambian consumer price inflation surged to 12.6%, marking its most rapid pace in nearly two years, partly driven by the depreciation of the kwacha.
Given that Zambia imports a wide range of products, from fuel to fertilizer, the exchange rate fluctuations have a significant impact on prices.
