Bank of Zambia

¡
¡ FIRST QUARTER 2010 MEDIA BRIEFING

BY


CALEB M . FUNDANGA


Governor

BANK OF ZAMBIA


Presented
 at the Bank of Zambia
13 May , 2010

1
 INTRODUCTION
Bank of Zambia

l This brief reviews monetary policy outcomes;



l Other economic and financial sector

developments in Q1 2010; and


l Concludes with an inflation outlook for Q2

2010.


2
 1.0 MONETARY POLICY
Bank of
Zambia
• Monetary policy focus in Q1 2010


• Macroeconomic stability and achieving end-year

inflation target of 8%.


ð By containing growth of liquidity in banking

system within projected path.


3
 2.0 INFLATION
Bank of Zambia

 Annual inflation rose to 10.2% in March 2010 (Dec

09: 9.9 %) mainly due to:


Ø Rise in food prices (breakfast and roller
meal, rice, millet beef products, dried
kapenta and fresh vegetables).
Ø
Ø Despite a fall in inflation rates for
clothing and recreation, medical care; and
furniture and household goods sub-groups.

4
 2.0 INFLATION
Bank of Zambia

5
 3.0 MONEY SUPPLY & DOMESTIC
CREDIT
Bank of Zambia

•
• Broad money (M3), comprehensively defined to include
foreign currency deposits, grew by 5.5% in the
first quarter of 2010 up from 4.1% recorded at
end-December 2009.


 Largely due to the 16.4% expansion in net foreign

assets (NFA), with NDA contracting by 0.6%.

 On an annual basis M3 growth rose to 14.2% in March
from 8.3% in December, 2009, with NFA and NDA
rising by 7.1% and 19.3%, respectively.


•



 6
 3.0 MONEY SUPPLY & DOMESTIC
CREDIT (cont)
Bank of Zambia

• On a quarterly basis, domestic credit growth was

2.1%, during the first quarter of the year,
compared to a contraction of 2.7% in Q4, 2009.
•
• Credit to Government continued to drive NDA growth
with the Net Claims on Government rising by
17.8%.
•
• However, on an annual basis, domestic credit growth
slowed to 9.8% in March 2010 from 15.2% in
December 2009. This was driven by a decline in
credit growth to the private sector of 13.8%.


• Personal loans continued to account for the highest

share of loans and advances at 27.7% (22.1%,
fourth quarter 2009) followed by agriculture at
20.0% (19.3%, fourth quarter 2009).


¡ 7
 4.0 INTEREST RATES
Bank of Zambia
Yield Rates On Government Securities


• The composite yield rate for Treasury bills ended the quarter at
3.7%, down from 9.5% recorded at the end of 2009.


• The weighted average yield rate for Government bonds fell to

10.3%, 6.0 percentage points lower than the end December 2009
closing rate.
•
• The fall in yield rates was due to high levels of liquidity in
the banking sector.


Commercial Banks Interest Rates



¡ The weighted average lending base rate and the average lending
rate hardly changed at 22.5% (22.7%) and 29.0% (29.2%),
respectively.
¡ Average savings rate for amounts above K100,000 and 30-day deposit
rate remained unchanged at 4.7% and 5.6%.
• 8

 5.0 FOREIGN EXCHANGE MARKET
Bank of
Zambia
•

• During the quarter, the Kwacha appreciated against

major currencies mainly due to the sustained rise
in copper prices.
  
• The Kwacha appreciated by 0.8%, 6.8% and 5.3% against
the US dollar, Euro and Pound Sterling. Against the
South African rand the Kwacha gained by 1.1%.


• The volume of foreign exchange traded in the market

marginally declined. Commercial banks’ sales to the
market decreased to US$850.2 million from US$855.3
million while purchases amounted to US$930.2
million, down from US$1,059.2 million.





9
 5.0 FOREIGN EXCHANGE MARKET
Bank of
Zambia
•



§


10
 6.0 REAL SECTOR
INDICATORS
Bank of
Zambia
 Overall performance of the real sector was mixed:
Ø Mining, copper output at 174,725.12 mt during the
quarter was 3% lower than 180,188.17 mt of
copper produced in Q4 of 2009. However, the
output was 2.2% higher than 170,948.19 mt
produced in the first quarter of 2009.


Ø Cobalt output increased by 3.4% to 1,960.72 mt

from 1,896.24 mt in the previous quarter.
Ø
Ø Manufacturing, Output of cement, beer, soft drinks
and milk declined mainly on account of seasonal
factors.
Ø
Ø Investment Pledges,total investment pledges stood
at US $1.4 billion compared to US $452.0 million
in the fourth quarter. When fully executed,
these pledges are expected to generate 5,943
jobs.
Ø 11
 7. 0 BALANCE OF PAYMENTS ( BoP )
Bank of
Zambia

• Preliminary data show that Zambia recorded an

overall balance of payments (BoP) deficit of US
$81.4 million during the first quarter of 2010
compared with a surplus of US $18.2 million
recorded the previous quarter.
•
• This was on account of unfavourable performance
in the financial and capital account.

12
7.0 BALANCE OF PAYMENTS ( cont ’ d )

¡
¡ During the quarter under review, the capital and
financial account surplus narrowed to US $117.6
million from US $196.1 million recorded the
previous quarter.


¡ This was attributed to a decline in capital transfers

, direct investment , portfolio investment and
other investments.
¡

13
 7 . 0 BALANCE OF PAYMENTS
( cont ’ d )
Bank of Zambia
Ø However, merchandise trade surplus improved
to US $368.5 million in the first quarter
2010 from US $272.2 million recorded in Q4
of 2009 due to an increase in merchandise
exports earnings.


Ø Copper export earnings, at US $1,274.7

million, were 19.5% higher than US $1,067.1
million recorded during the previous
quarter:


Ø Reflecting a rise in the realised price of

copper by 10.8% to US $6,665.59 from US
$6,013.37 per tonne the previous quarter.


Ø Similarly, copper export volumes, increased

by 7.8% to 191,229.77 metric tons (mt) from
177,457.68 mt recorded during the last
quarter of 2009.
Ø 14
 7 . 0 BALANCE OF PAYMENTS
( cont ’ d )
Bank of Zambia


Ø Similarly, cobalt export earnings grew by

32.2% to US $78.0 million in the first
quarter of 2010 from US $59.0 million
realised the previous quarter.


Ø This was largely a result of the 28.0%

rise in the realised price to US $18.19 per
pound from US $14.21 per pound recorded the
previous quarter.


Ø Cobalt export volumes increased by 3.2% to

1,943.52 mt during the first quarter of 2010
from 1,882.44 mt, the previous quarter.
Ø

15
 7 . 0 BALANCE OF PAYMENTS ( cont ’ d )
Bank of Zambia


§ During the first quarter of 2010, non-traditional

exports (NTEs) declined by 11.0% to US $258.4
million from the US $290.5 million realised in
the previous quarter;


§ Largely due to a fall in export earnings from

cane sugar, burley tobacco, cotton lint, fresh
flowers, fruits and vegetables, gemstones, maize,
cement and petroleum products
Ø


16
 7 . 0 BALANCE OF PAYMENTS
( cont ’ d )
Bank of
Zambia


 Table 2 : Trade Data in US $ millions ( f . o . b ), Q1 2009 –

Q1 2010

2009 2009 2009 2009 2010

Q1 Q2 Q3 Q4 Q1*
Trade Bal -99.0 -12.2
341.9 272.2 368.5
Exports 658.3 899.7 1,321.0 1,416.6 1,611.1

Metals 510.1 691.7 1,015.2 1,126.1 1,352.7

Copper 497.5 666.8 947.8 1067.1 1,274.7

Cobalt 12.6 24.9 67.4 59.0 78.0

Non-Metals 148.2 208.0 305.8 290.5 258.4

Imports -757.3 -911.9 -979.1 -1,144.4 -1,242.6

17
 8 . 0 IMPLEMENTATION OF THE ECONOMIC
PROGRAMME
Bank of Zambia

• An IMF ndmission visited Zambia between 18th February

and 2 March 2010:
•
Ø The mission reached preliminary agreement with
the Zambian Authorities on the 2010
Macroeconomic framework and structural
measures;


l Total disbursed poverty reduction budget

support (PRBS) in the first quarter of 2010
amounted to US $66.3 million against a
projection of US $128.5 million and


l Payments to various creditors, excluding IMF

debt service, amounted to US $10.6 million.


¡ All quantitative benchmarks, except the unencumbered

international reserves benchmark at end-March 2010
were observed.

18
 9.0 DEVELOPMENTS IN FINANCIAL
SECTOR
Bank of Zambia

• The overall financial condition and performance of

the banking sector was satisfactory in the first
quarter 2010.


Ø The banking sector was adequately capitalized

and the liquidity position remained
satisfactory;
Ø
Ø There was a modest improvement in the asset
quality and earnings performance compared to
the previous quarter.
Ø
 The overall financial performance and condition of
the NBFIs was rated fair.


Ø Leasing and finance companies, MFIs and

bureaux de change had adequate regulatory
capital, fair asset quality and liquidity
position. 19

 10 . 0 DEVELOPMENTS IN BCPS
Bank of Zambia

Ø The total volume of cheques returned unpaid on

account of insufficiently funded accounts
decreased by 15% to 5,287 cheques (Qtr 4 2009:
6,247 cheques).
Ø
Ø The value of these cheques decreased by 16% to
K39.83 billion (Qtr 4 2009: K47.49 billion).
Ø
Ø The public is reminded that bouncing
cheques is a criminal offence under the
National Payment System Act .
Ø
Ø


20
 11 . 0 INFLATION OUTLOOK FOR
SECOND QUARTER 2010
Bank of Zambia

Ø The annual inflation rate is expected to slow down

during the second quarter of 2010,


Ø largely due to an increase in the supply of fresh food

items with the onset of the 2009/2010 crop harvest
period.


21
Bank of Zambia


 THANK YOU


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