Governor holding lending rate to 5.75%

9 Jan

The Central Bank has decided to maintain the Bank lending rate at 5.75 percent. Governor Majozi Sithole said consultations with the Monetary Policy Consultative Committee (MPCC) on the 20th November 2015 considered the country’s low economic activity and declining lending rates in banking sector lending.

The Bank also considers the stable domestic inflation as under control. The governor says inflation grew slightly, to 4.6 percent in October 2015 from 4.5 percent in September 2015.  However increase in commercial bank lending to the private sector has remained the same at 5.7 percent between September 2015 and September 2014, which is lower compared to 8.4 percent between July 2015 and July 2014. Declining growth rate in commercial bank lending to the private sector was noticeable in the business sector, especially in the ‘Agriculture and Forestry’, ‘Manufacturing’, ‘Mining and Quarrying’ and ‘Construction’ sectors.

“Business people need financing mainly in the form of commercial bank loans to start, operate and expand businesses,” he said.

“The creation, operation and expansion of businesses generate the necessary jobs. The low interest rate environment generally enables businesses to borrow and invest, thereby contributing to employment creation. If the Bank increases its discount rate, commercial banks will in turn raise their lending rates, which will impact negatively on creation of jobs.”

Commercial bank lending to the household sector, on the other hand, grew by 16.2 percent between September 2015 and September 2014. This is a wider growth compared to 13.6 percent between July 2015 and July 2014.

As at 13th November 2015 gross official reserves stood at E8.8 billion, reflecting a 1.2 percent decline from the week before. At this level, gross official reserves were enough to cover an estimated 3.8 months of imports of goods and services, which is above the internationally acceptable minimum of 3 months. The reduction in reserves was mainly due to payments of government’s external obligations.

Looking ahead, the Governor expects inflation to remain low in the short term, benefiting from the low prices of fuel. Fuel and electricity prices are expected to remain stable in the short term, posing minimal threat to inflation increases. However, the prevailing drought and the declining value of the Lilangeni against major world currencies may be a threat to inflation in the medium to long term, the Governor said.

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