Bank of Zambia

QUARTERLY MEDIA BRIEFING

BY

CALEB M. FUNDANGA

GOVERNOR
BANK OF ZAMBIA

1 August, 2009 1
 INTRODUCTION
Bank of Zambia

 Brief assesses monetary policy

implementation and outcomes and

 Other economic and financial sector

developments in Q2, 2009.

 Concludes with inflation outlook for Q3,

2009.

2
 1.0 MONETARY POLICY
Bank of Zambia

Focus: Achievement of end-year inflation

target of 10%.

 Maintaining Reserve Money within programmed

growth path.

3
Bank of Zambia 2.0 INFLATION

2009
Annual overall inflation was 14.4% in June
(13.1%, end-March 2009), due to rise in
both food and non-food inflation:

Food: Discontinuation of supply of Government

subsidised maize by FRA to millers; and

Non-Food: Pass-through effects of depreciation

of the Kwacha against global currencies .

4
Bank of Zambia 2.0 INFLATION (cont’d)

Annual Inflation, Dec 04- Jun 09

23
21
19
17
15
13
11
9
(%
)

7
5
3
1
-1

-09

-09
-08
-08
Jun

Jun

S
ep

ep
S
ept
M

M
Jun07

Jun08
D

Jun
D
ec04

ec05

ec06

ec07
ar05

ar06

ar07

ar08

ec
S

ar
ept
Overall Food Non-food

5
 3.0 MONEY SUPPLY & DOMESTIC
CREDIT
Bank of Zambia

Annual M3 growth slowed down to 20.5% June 2009

(26.8%, March 2009) due to fall in NDA (19.0%) and
increase in NFA (74.1%).

Annual domestic credit growth was 39.2% (52.7%,

March 2009); growth owing to net lending to
Government (141.5% increase).

Sectoral distribution of credit:

Personal loans category, highest recipient at
24.9% of total loans (23.8%, Q1 2009), followed
by agriculture 17.5% (16.9%, Q1); manufacturing
11.1% (10.8%, Q1).
6
 4.0 INTEREST RATES
Bank of Zambia

Yield Rates On Government Securities increase

 Weighted Average Treasury Bill Rate rose to 16.9% (16.7%, March
2009).

 Weighted average yield rate on bonds rose to 18.8% (18.4%, March

2009).

Commercial Banks Nominal Interest Rates rise

 All nominal rates rose, except Average Savings Rate at 4.8%;

 Weighted average lending base rate rose to 22.4% (20.9%, March);

 Average Lending Rate rose to 28.9% (27.0%) ; and

 30-day deposit rate remained stable at 5.6% (5.1%).
7
 5.0 FOREIGN EXCHANGE MARKET
Bank of Zambia

The Kwacha marginally appreciated by 1% against the

US$ (9.3% depreciation, Q1) due to;

 Reduced demand, especially from foreign financial

institutions;

Global economic recovery weakens risk aversion

 Improved sentiments following increased forex

earnings;

Rising international copper prices since

beginning of 2009.
8
 5.0 FOREIGN EXCHANGE MARKET (cont’d)
Bank of Zambia

9
 5.0 FOREIGN EXCHANGE MARKET (cont’d)
Bank of Zambia

10
 6.0 BALANCE OF PAYMENTS (BoP)
Bank of
Zambia

 Overall BoP - surplus of US $24.9 million recorded in Q2

(deficit of US $147.7 million, Q1):

 Due to improved performance in current account.

 Largely explained by surplus in trade balance of US

$34.5 million in Q2 (US $60.8 million deficit, Q1) ;

Increase in export earnings.

 Other contributions to current account improvement were

net income payments and net current transfers.
11
 6.0 BALANCE OF PAYMENTS (cont’d)
Bank of
Zambia
Trade Data in US $ millions (f.o.b.), Q1 2008 - Q2 2009

2008 2008 2008 2008 2008 2009 2009

Q1 Q2 Q3 Q4 Total Q1 Q2*

Trade Balance 421.1 235.8 -183.9 -69.8 403.2 -60.8 34.5

4,876.9 864.1
Exports (c.i.f) 1,318.6 1,441.8 1,206.7 909.8 713.9

Metals 1,147.2 1,216.2 925.6 711.7 4,000.7 575.4 706.6

Copper 1,035.5 1,126.1 856.2 666.4 3,684.2 562.9 688.6

Cobalt 111.7 90.1 69.4 45.3 316.5 12.9 18.0

NTEs 171.4 225.6 281.1 198.1 876.2 138.1 157.5

Imports c.i.f -913.2 -1,225.9 -1,416.3 -999.9 -4,555.3 -668.3 -847.6

12
 6.0 BALANCE OF PAYMENTS
(cont’d)
Bank of
Zambia

 Merchandise export earnings increased by 21.0% to US

US $ 864.1 million:
Copper export earnings, at US $688.6 million, were
22.3% higher than US $562.9 million;

19.4% rise in realised copper price to US

$4,045.66 per mt from US $3,389.42 per mt;

Volumes increased by 2.2% to 170,218.93 mt.

13
 6.0 BALANCE OF PAYMENTS (cont’d)
Bank of
Zambia
 Cobalt export earnings recorded a 39.2% increase to
US $18.0 million in the second quarter of 2009;

 Realised cobalt price rose to US $12.97 per pound

from US $5.03 per pound.

Cobalt export volumes declined by 46.0% to 628.51

mt.

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 6.0 BALANCE OF PAYMENTS (cont’d)
Bank of
Zambia
 NTEs at US $157.5 million were 14.0% higher than US
$138.1 million realised in Q1:

 Increased earnings from copper wire, cane

sugar, cotton yarn, fruits and vegetables,
gemstones, petroleum products and electricity.

15
 6.0 BALANCE OF PAYMENTS (cont’d)
Bank of
Zambia
 Merchandise imports also rose by 26.8% to US
$847.6 million (US $668.3 million, Q1):

 Higher import bills of food items, petroleum products,

fertiliser, iron and steel products, industrial boilers and
equipment, and electrical machinery and equipment.

16
 7.0 ECONOMIC REFORM
PROGRAMME
Bank of Zambia

 The IMF completed 1st and 2nd reviews under PRGF

arrangement in Q2:

 The Executive Board approved US $256.4 million

financial support to Zambia;

 A total of US $162.2 million was disbursed in the period

under review; and

 All quantitative benchmarks were met at end-June and

the structural benchmarks were generally on track.

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 8.0 DEVELOPMENTS IN BANKING

Bank of Zambia
SECTOR
 Overall financial performance and condition of the
banking sector was satisfactory in Q2;

 Banks fundamentally sound; but

An increase in non-performing loans to 10.4% of
total assets from 8.8% at end March.

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 9.0 DEVELOPMENTS IN NON-
BANK
Bank of Zambia
FINANCIAL INSTITUTIONS
 Overall financial performance and condition of NBFIs
was rated fair during the Q2:

 Adequate regulatory capital and asset quality for leasing

companies and bureaux de change;

 2 leasing finance companies, 1 building society and 1

credit and savings institution had regulatory capital
deficiencies.

19
 10.0 DEVELOPMENTS IN BCPS

Bank of Zambia

 Volume of unpaid cheques declined by 11% to 5,568

cheques (quarter 1: 6,264);

 Value increased by 24% to K57 billion (quarter 1: K46

billion).

The BoZ would like to urge the Media to educate the

public on the consequences of ‘bouncing cheques’.

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 11.0 INFLATION OUTLOOK FOR
THIRD QUARTER 2009
Bank of Zambia
 Inflationary pressures expected to emanate from:
 High production costs due to current power shortages and
recently approved increase in electricity tariffs; and
 Higher international crude oil prices if sustained.

 Offsetting factors:
 Reduction in food inflation due to ongoing crop marketing
season;
 Continued stability in the exchange rate.

 BoZ to continue to employ indirect instruments for

monetary operations,
 Prudent fiscal operations necessary.
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Thank You

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