Economics Association of Zambia (EAZ) says raising the Monetary Policy Rate (MPR) is not the best solution to curtail the rising inflation in the country, as this could dampen economic growth by restricting access to credit for businesses and households.
Bank of Zambia (BoZ) this week increased the MPR from 13.5% to 14.0%, citing the increase in the actual and projected inflation, away from the targeted 6 to 8% band.
EAZ Vice President, Mbanji Milambo, however says Monetary Policy Committee (MPC) must instead adopt a more balanced strategy that leverages both demand- and supply-side instruments to manage inflation sustainably as opposed to increasing the MPR.
Mr. Milambo said solely relying on demand-reducing measures, such as raising interest rates, could dampen economic growth by restricting access to credit for businesses and households, thereby stifling production and investment at a critical time.
“The EAZ advocates for a broader approach that includes open market operations (OMO) and other liquidity management tools to stabilize the economy without heavily burdening borrowers,” said Mr. Milambo.
He said the MPC can help manage inflation without overly constricting economic activity, by allowing market forces to play a more significant role in balancing demand and supply.
Mr. Milambo said a targeted focus on enhancing local production in essential sectors such as agriculture and energy would alleviate cost-push inflation and reduce Zambia’s reliance on imports, ultimately easing pressure on the Kwacha and helping to stabilize the currency.
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