Transcript Document

Bank of Zambia
MONETARY POLICY STATEMENT
FOR
SECOND QUARTER 2015
14th May 2015
1
INTRODUCTION
The Monetary Policy Committee met on 12 May, 2015 to review
developments in the first quarter of 2015 with regard to:
1. Global economic environment
2. Conduct of monetary policy
3. Domestic economic environment
4. Decision on the Policy Rate
2
GLOBAL ECONOMIC DEVELOPMENTS
•Global economic growth in 2014 continued to be modest at 3.4%.
•In 2015, the global economy is projected to be at 3.5%.
•Growth in advanced economies are expected to increase while
growth in emerging economies will slow down.
•Monetary policies are expected to be divergent:
• the US expected to start raising interest rates
• Other advanced economies will maintain accommodative policies.
3
GLOBAL ECONOMIC DEVELOPMENTS
 Commodity prices are expected to remain subdued due to low global
demand.
 In the first quarter of 2015, average copper price declined by 7.8% to US
$5,940 per metric ton from US $6,446 in Q4 2014
 Average price of crude oil also declined by 10.4% to US $55.8 per barrel
from US $62.3 per barrel during the same period
4
DOMESTIC ECONOMIC DEVELOPMENTS
Monetary Policy
 Monetary policy remained focused on the achievement of the inflation objective of the 7%
inflation target for 2015.
 During the first quarter of 2015, monetary policy remained tight as inflation was projected
to remain at elevated levels relative to the inflation target.
 The period under review was characterised by exchange rate volatility, induced by the
deteriorating external environment and domestic factors – new mining tax regime
 To address the exchange rate volatility, monetary policy was tightened further through an
increase in the Statutory reserve ratio to 18% from 14%, effective 8th April, 2015.
 The Bank also continued to manage liquidity conditions in the market by ensuring that the
interbank rate remained close to the Policy Rate (see Chart below).
DOMESTIC ECONOMIC DEVELOPMENTS
As a consequence of the tight monetary conditions, the weighted average
interbank rate rose during the quarter to 12.9 % from 11.5%
DOMESTIC ECONOMIC DEVELOPMENTS
Government Securities Market
Demand for Government securities remained weak.
Investors subscription on Treasury bill auctions averaged 68%
compared with an average of 52% the previous period.
 Subscription on Government bond auctions declined to an average of
60% compared with the subscription rate of 92.5% in the fourth quarter
of 2014.
Consequently, yield rates on Government securities rose, with the
weighted average Treasury bill yield rate increasing to 19.6% from
18.0% while the composite bond yield rate rose marginally to 21.1%
from 21.0%.
DOMESTIC ECONOMIC DEVELOPMENTS
Government Securities Market
8
DOMESTIC ECONOMIC DEVELOPMENTS
Government Securities Market
DOMESTIC ECONOMIC DEVELOPMENTS
Government Securities Market
10
DOMESTIC ECONOMIC DEVELOPMENTS
Money supply and Domestic Credit
•
Growth in money supply slowed down to 12.1% during the quarter under
review from 12.3% in last quarter of 2014.
•
When compared to the first quarter of 2014, growth was 17.2% lower in the
first quarter of 2015.
•
In real terms, growth in money supply was 4.9% in the first quarter of 2015,
up from 4.4% in the fourth quarter of 2014 and down from 21.6% in the first
quarter of 2014.
•
The decline in the year-on-year growth in money supply is mainly a reflection
of the tight monetary policy implemented since the second quarter of 2014.
Money supply and Domestic Credit
• Domestic credit rose by 12.8% in the quarter under review compared
with 10.8% in the last quarter of 2014, mainly due to higher lending to
Government and private sector.
•Annual domestic credit growth rose to 13.1% compared with 11.3% in
Q4 2014 largely due to lending to private enterprises.
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Money supply and Domestic Credit
500.0
70.0
60.0
400.0
50.0
300.0
40.0
200.0
30.0
20.0
100.0
10.0
0.0
Dec 11
Mar
Jun
Sep
Dec 12
Mar
Jun
Sep
Dec 13
Mar
Jun
Sep
Dec 14
Mar 15
-100.0
0.0
-10.0
Government
Privt Enterprises
Households
Total Credit
Broad money
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THE FOREIGN EXCHANGE MARKET
Kwacha depreciated against major currencies on combination of factors
 The new Mine tax regime, falling copper prices, Fitch’s downgrade of
Zambia’s economic outlook largely weighed down on the domestic
currency.
 The Kwacha recorded a depreciation of 19%, 13%, 12% and 5%
against the US dollar, South African rand, British Pound and Euro,
respectively.
 Nonetheless, kwacha recovered towards the end of the quarter on
account of higher statutory reserve requirements imposed on
commercial banks.
THE FOREIGN EXCHANGE MARKET
15
US$
GBP
Euro
16-Apr-15
14-Apr-15
13-Apr-15
10-Apr-15
9-Apr-15
8-Apr-15
7-Apr-15
2-Apr-15
1-Apr-15
27-Mar-15
27-Feb-15
25-Feb-15
23-Feb-15
19-Feb-15
17-Feb-15
13-Feb-15
11-Feb-15
9-Feb-15
5-Feb-15
3-Feb-15
30-Jan-15
28-Jan-15
26-Jan-15
22-Jan-15
19-Jan-15
15-Jan-15
13-Jan-15
9-Jan-15
7-Jan-15
5-Jan-15
USD, GBP, Euro
10.0
0.40
9.0
0.30
8.0
0.20
7.0
0.10
6.0
0.00
Rand
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South African Rand
THE FOREIGN EXCHANGE MARKET
Comparative ZMW Exchange Rate Movements
12.0
0.60
11.0
0.50
THE FOREIGN EXCHANGE MARKET
ZAR depreciated more than ZMK against USD
 Kwacha depreciated by about 50% against the dollar over the last three years.
 Rand depreciated by about 80% against the dollar over the same period
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THE FOREIGN EXCHANGE MARKET
The supply of Foreign Exchange Declined
 Traditional lines of supplies - mining houses and foreign portfolio
activists - dropped

THE FOREIGN EXCHANGE MARKET
Demand for Foreign Exchange Increased
 Net demand for forex from the public and bureaux eventually weighed
down on the local unit.
THE FOREIGN EXCHANGE MARKET
Demand for Foreign Exchange Increased
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EXTERNAL SECTOR
External sector performance continued to be unfavourable…
Overall BoP deficit widened to US $405.2 million from US $131.9 million in Q4 2014,
due to unfavourable performance in the current and financial accounts.
Current
account deficit widened to US $223.3 million from US $179.6 million,
following a narrowing balance on goods surplus and lower secondary income inflows
 Balance on goods surplus narrowed to US $157.0 million from US $364.5 million
Export earnings declined by 31.2% to US $1,783.9 million from US $2,592.6
million on account of lower earnings from copper, cobalt and NTEs
 Imports declined by 27.0% to US $1,629.9 million from US $2,228.1 million

Capital
account declined to US $40.9 million from US $51.0 million following a fall in
project grants
Financial
account deficit widened to US $220.5 million from US $1.8 million
previously
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Decline in merchandise exports earnings was due to declines in copper,
cobalt and NTEs by 40.5%, 25.2% and 3.3%, respectively.
1978.8
2,000.00
1873.5
1935.6
1830.6
1,800.00
1,600.00
1,400.00
1151.9
1,200.00
1,000.00
800.00
600.00
585.8
572.2
564.5
549.6
566.6
400.00
200.00
30.7
40.1
29.8
47.9
33.2
37.9
30.2
26.3
22.6
32.9
0.00
Q1.2014
Q2.2014
Copper
Q3.2014
Cobalt
Q4.2014
NTEs
Q1.2015
Gold
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Selected indicators of economic activity showed a general
decline on quarterly and year-to-date basis …
Agriculture
The stock of maize grain held by the Food Reserve Agency (FRA) were 9.0% lower
than the end-December 2014 stock.
Stock of rice held 6.6% lower than that held as at end-December 2014
However, the level of maize stocks, together with expected harvest for the 2014/15
season is expected to be enough for domestic consumption and industrial use.
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FRA Maize and Rice Stocks declined, but still enough for domestic
consumption
FRA Maize and Rice Stocks (MT)
3,000
1,600,000
1,400,000
2,500
1,200,000
2,000
1,000,000
1,500
800,000
600,000
1,000
400,000
500
200,000
-
Maize
Mar-15
Dec-14
Sep-14
Jun-14
Mar-14
Dec-13
Source: Food Reserve Agency
Sep-13
Jun-13
Mar-13
-
Dec-12
◦
Rice
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Mining output declined…
300,000
70,000
250,000
60,000
50,000
200,000
40,000
Copper production was 16.5% lower
in the first quarter of 2015 than the
190,190 mt produced in the last
quarter of 2014, and was 10.0%
lower than the 179,583.7 mt produced
in Q12014
150,000
30,000
100,000
20,000
50,000
10,000
Copper
Mar-15
Dec-14
Sep-14
Jun-14
Mar-14
Dec-13
Sep-13
Jun-13
Mar-13
Dec-12
-
Production of coal declined by 22.3%
to 35,008 mt in Q1 2015 from 45,068
mt in Q4 2014. This level of
production was 19.1% lower than the
43,249 mt produced in Q1 2014
Coal
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Cement output declined by 23.1% in Q1 2015 …
Production of cement declined by 23.1% to 352,033.7 mt in Q1 2015 from 457,624 mt in Q4
2014. This was 4.7% lower than the 336,373 mt produced in Q1 2014
600,000
500,000
400,000
300,000
200,000
100,000
0
2012 Q1 2012 Q2 2012 Q3 2012 Q4 2013 Q1 2013 Q2 2013 Q3 2013 Q4 2014 Q1 2014 Q2 2014 Q3 2014 Q4 2015 Q1
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INFLATION
Inflation slowed down to 7.2% in March 2015 from 7.9% in December due to a
decline in both food and non-food inflation….
Non-food inflation declined to 7.1% from 8.4% mainly due to the reduction in
fuel pump prices.
 Decline in non-food inflation is partly a reflection of the monetary policy
measures implemented by the central bank and the reduction in fuel pump
prices.
Food inflation fell to 7.2% from 7.5% on account of sales of maize grain by Food
Reserve Agency (FRA) at lower than market prices to moderate mealie meal prices
as well as increased availability of fresh food items.
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INFLATION
Annual Inflation Developments, Mar 2012 - Mar 2015
9.0
8.5
8.0
7.9
7.9
7.8
7.7
7.5
7.3
7.3
7.2
7.1
7.0
7.0
6.7
6.6
6.6
6.5
6.4
6.0
5.5
Overall
Food
Non-food
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Mar-15
Dec-14
Sep-14
Jun-14
Mar-14
Dec-13
Sep-13
Jun-13
Mar-13
Dec-12
Sep-12
Jun-12
Mar-12
5.0
MPC DECISION
Monetary Policy Committee decided to leave the Policy Rate
unchanged at 12.5%. The Committee took the following factors into
account in arriving at the decision:
The recent downward movement in inflation from 7.9% in December
to 7.2% in March 2015, with non-food inflation being the main driver.
This development is partly a reflection of the monetary policy measures
taken in 2014 as well as the reduction in fuel pump price.
The onset of the crop marketing season in the second quarter is likely
to moderate inflationary pressures
The recent tightening of monetary policy through the upward
adjustment in the statutory reserve ratio from 14% to 18% effective 8th
April 2015 and the impact of this measure is yet to be fully realized.
MPC DECISION

The recent decision by the Government to resolve the 2015
mining tax impasse is likely to help dampen the negative
sentiments in the economy and mitigate inflationary pressures.
To complement monetary policy, further fiscal adjustments are
required to address revenue shortfalls and rationalise expenditure
so as to achieve fiscal sustainability. This is critical to achieving to
a stable macroeconomic environment going forward.
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Bank of Zambia
END OF PRESENTATION…
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