BAZ endorses wholesale base rates

BAZ endorses wholesale base rates
By Chiwoyu Sinyangwe
Fri 04 Dec. 2009, 04:00 CAT

THE introduction of wholesale base rates in the country will help to reduce misunderstandings between commercial banks and customers over interest rates, Bankers Association of Zambia (BAZ) chairman Saviour Chibiya has observed.

Central Bank has indicated that it will next year abandon the open market system it had pursued since the liberalisation of economic policies in the early 1990s. Under the current regime, Zambian commercial banks determine their own lending rates without any official reference point.

Commenting on the announcement by the Bank of Zambia (BoZ) that it would next year introduce a wholesale lending rate, Chibiya said a policy shift would facilitate further development of the financial markets in Zambia.

“The absence of this window in the local market has in the past led to difficulty in agreeing on a widely accepted reference rate as banks would typically refer to their own Base Rates whilst some customers did not fully agree on the determination of such an interest rate,” Chibiya said.

“Banks also had to discount their Treasury Bills or borrow in the interbank market when they have a normal short term liquidity requirement and these rates could be punitive and quite unpredictable depending on the timing.”

Chibiya, who is also managing director for Citibank Zambia, further said the new monetary policy would in turn help enhance liquidity in the local financial sector.

“This window at the Central Bank will therefore aid liquidity management of the banks and hopefully have a positive influence on overall interest rates,” said Chibiya.

“In principle we are pleased with this development and we await to see the implementation.”

BoZ deputy governor for operations Denny Kalyalya said the fixed rate system would allow the Central Bank to influence lending rates commercial banks charge.
Simultaneously, as part of the new monetary shift, the Central Bank this month introduced an overnight lending facility, which Kalyalya said would enable BoZ to provide liquidity to the market whenever necessary.