1
MONETARY POLICY COMMITTEE STATEMENT FOR
SECOND QUARTER 2017
Governor’s Presentation to the Media
10th August, 2017
INTRODUCTION
2
The presentation is structured as follows:
1. Decision of the Monetary Policy Committee
2. Overview
3. Global economic developments
4. Domestic economic developments
5. Macroeconomic outlook
MONETARY POLICY DECISION3
At the Meeting held on 8 – 9 August 2017, Monetary Policy Committee decided to:
1. Lower the Policy Rate by 150 basis points to 11.0% from 12.5%; and
2. Reduce the Statutory Reserve Ratio by 300 basis points to 9.5% from 12.5%.
MONETARY POLICY DECISION4
The Committee took into account the following factors in arriving at its decisions:
Sustained decline in inflation over the last seven months, with inflationbeing firmly anchored in single digit levels;
Inflation projections, which suggest that inflation will remain withinthe medium-term target range of 6-8% over the next 8 quarters;
The prevailing high cost of credit, particularly to the productive sectorsof the economy;
Sluggish growth in credit to the private sector;
Deterioration in commercial banks’ asset quality as reflected risingnon-performing loans; and,
Weak economic growth.
OVERVIEW
5
Following further easing of monetary policy stance, the overnightinterbank rate declined to 12.2% at end-Q2 from 13.0% at end-Q1 2017.
Figure 1: Interest Rates and Excess Reserves
-
0.50
1.00
1.50
2.00
2.50
3.00
6.00
11.00
16.00
21.00
26.00
3-M
ar-
16
3-A
pr-
16
3-M
ay-
16
3-J
un
-16
3-J
ul-
16
3-A
ug
-16
3-S
ep-1
6
3-O
ct-1
6
3-N
ov
-16
3-D
ec-1
6
3-J
an
-17
3-F
eb-1
7
3-M
ar-
17
3-A
pr-
17
3-M
ay
-17
3-J
un
-17
3-J
ul-
17
3-A
ug
-17
Ex
ce
ss
Re
se
rv
es
, K
'bil
lio
n
Po
lic
y,
Inte
rb
an
k,
OL
F R
ate
(%
)
Excess Reserves BOZ Policy Rate Interbank Rate
Upper-Bound OLF Rate Lower Bound
The Kwacha appreciated against major foreign currencies, supported by improved supply of foreign exchange and higher copper prices.
OVERVIEW6
Figure 2: Exchange rate developments
0.0000
0.2000
0.4000
0.6000
0.8000
1.0000
1.2000
5.0000
7.0000
9.0000
11.0000
13.0000
15.0000
17.0000
19.0000
21.0000
23.0000
30
-Ju
n-1
4
31-A
ug
-14
31-O
ct-1
4
31-D
ec
-14
28
-Fe
b-1
5
30
-Ap
r-1
5
30
-Ju
n-1
5
31-A
ug
-15
31-O
ct-1
5
31-D
ec
-15
29
-Fe
b-1
6
30
-Ap
r-1
6
30
-Ju
n-1
6
31-A
ug
-16
31-O
ct-1
6
31-D
ec
-16
28
-Fe
b-1
7
30
-Ap
r-1
7
30
-Ju
n-1
7
USD/ZMW GBP/ZMW EUR/ZMW ZAR/ZMW(RHS)
OVERVIEW
7
Annual inflation rose marginally to 6.8% in June from 6.7% in March2017 following a hike in electricity tariffs. In July 2017, inflationdeclined to 6.6% Figure 3: Inflation developments
5
10
15
20
25
30
May
-15
Jul-
15
Sep
-15
No
v-1
5
Jan
-16
Mar
-16
May
-16
Jul-
16
Sep
-16
No
v-1
6
Jan
-17
Mar
-17
May
-17
Jul-
17
Per
cen
t
Overall Inflation Food inflation Non-food inflation
GLOBAL ECONOMIC DEVELOPMENTS
8
The global economy is projected to grow by 3.5% in 2017 from3.1% in 2016, premised on strong growth outlook in emergingmarkets and developing economies (EMDEs).
Growth in EMDEs is projected at 4.6% in 2017 and 4.8% in 2018,reflecting;
Projected increase in commodity prices
Stronger demand in China - supported by fiscal policy stimulus measures.
Global commodity prices generally declined in Q2, 2017 (Table1).
GLOBAL ECONOMIC DEVELOPMENTS
9
Copper prices declined as LME copper stocks increased and imports fromChina sharply dropped. However, realised copper prices rose.
Oil prices declined, reflecting strong inventory levels in the United States andIran, and a pick-up in supply.
2017 Q1 2017 Q2
Copper Price (US$/ton) 5,840.0 5,668.0
Oil Price (Dubai) (US$/barrel) 52.9 49.7
Wheat (US$/ton) 177.0 176.0
Maize Price (US$/ton) 160.6 157.7
Cotton (US$/kg) 1.9 1.9
Sugar (US$/kg) 0.4 0.3
Soya beans (US$/ton) 419.0 386.0
Table 1: Selected Global Commodity Prices
DOMESTIC ECONOMIC DEVELOPMENTSMonetary Policy Operations
10
Monetary policy operations continued to focus on containing the overnight interbank rate within the Policy Rate corridor and anchoring inflationary expectations.
Market liquidity increased further following the reduction in the statutory reserve ratio, net Government spending and purchase of foreign exchange by BoZ for international reserves build-up (Table 2).
With the further easing of monetary policy in May 2017, the interbank rate declined to 12.2% at end-Q2 from 13.0% at end-Q1 (Figure 1).
To keep the interbank rate within the Policy Rate corridor, the Bank withdrew K10.8 billion through OMO, up from K4.0 billion in Q1 (Figure 4).
DOMESTIC ECONOMIC DEVELOPMENTSMonetary Policy Operations
11
Table 2: Key Liquidity Influences (K’ billion)
2017Q1 2017Q2
Opening balance 2.7 0.8
Net Govt. spending 1.3 1.3
BoZ FX influence 0.6 1.8
Change in CIC 0.9 -0.7
Change in SR deposits -0.4 -0.4
Overnight Lending Facility -0.1 0.03
Net Govt securities influence -3.1 -2.4
Open market operations -1.4 -0.3
Miscellaneous 0.3 0.0
Closing balance 0.8 0.3
DOMESTIC ECONOMIC DEVELOPMENTSMonetary Policy Operations
12
Figure 4: OMO Withdrawals, Quarterly (K’ billion)
17.4
12.9
2.3 2.6
10.5
(17.7)
(13.5)
(1.4)
(4.0)
(10.8)
(0.3)
0.9
(1.4)(0.3)
(20.0)
(15.0)
(10.0)
(5.0)
0.0
5.0
10.0
15.0
20.0
Q2'16 Q3'16 Q4'16 Q1'17 Q2'17
K' B
illi
on
Maturing Term Deposits/Repos Term Deposits borrowed/ Repos entered into Net
DOMESTIC ECONOMIC DEVELOPMENTSMonetary Policy Operations
13
Figure 5: Interbank Trading Activity (K’ billion)
46.2
33.2
26.4
17.2
10.2 10.6
19.6
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
50.0
Q4
'15
Q1
'16
Q2
'16
Q3
'16
Q4
'16
Q1
'17
Q2
'17
Volume of interbank trading rose despite higher market liquidity
DOMESTIC ECONOMIC DEVELOPMENTSGovernment securities market
14
Table 3: Government Securities Auctions
Demand for Government securities remained elevated, though subscription rates declined.
Amount on offer(K’Billion)
Amount Received(K’Billion)
Subscription rate (%)
T-bills
2017Q1 5.4 7.1 131
2017Q2 6.3* 7.7 122
Bonds
2017Q1 1.0 5.5 550
2017Q2 1.0 1.7 170
* More Tbill auctions were conducted in Q2, but auction size remained the same.
A total of K7.1 billion was raised from auctions against the maturity of K3.9 billion, resulting in a surplus of K3.2 billion.
15
Figure 6: Government Securities
DOMESTIC ECONOMIC DEVELOPMENTSGovernment securities market
3.83.3
7.07.3 7.1
3.4
2.3
3.42.8
3.9
0.41.0
3.6
4.5
3.2
-
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
Q'2 2016 Q'3 2016 Q'4 2016 Q'1 2017 Q'2 2017
K' B
illi
on
Funds Raised Maturities Surplus/Deficit
DOMESTIC ECONOMIC DEVELOPMENTSGovernment securities market
16
The total outstanding stock of Government securities increased by 9.7% to K42.0 billion. The increase reflects the switch in financing from foreign to domestic.
Figure 7: Total Outstanding Government Securities
10.9 12.9 13.4 12.8 12.1 10.9 10.9 10.5 13.217.4 19.8
11.611.9 12.7 12.8 12.6 12.7 13.5 14.8
19.8
20.922.2
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
Dec
-14
Mar
-15
Jun
-15
Sep
-15
Dec
-15
Mar
-16
Jun
-16
Sep
-16
Dec
-16
Mar
-17
Jun
-17
K' B
illl
ion
T-bills Bonds
17
Figure 8: Non-resident Holdings of Government Securities
DOMESTIC ECONOMIC DEVELOPMENTSGovernment securities market
Non-resident investors’ holdings of Government securities increased to K7.5 billion in Q2 from K6.9 billion in Q1 2017.
1.2 1.40.8 0.7 0.5 0.0 0.0 0.0
1.42.1
1.9 1.81.7
1.82.8
6.6 6.97.5
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Ma
r-1
5
Jun
-15
Se
p-1
5
De
c-1
5
Ma
r-1
6
Jun
-16
Se
p-1
6
De
c-1
6
Ma
r-1
7
Jun
-17
K' B
illi
on
T-bills Bonds
DOMESTIC ECONOMIC DEVELOPMENTSGovernment securities market
18
Yield rates on Government securities continued to trend downwards in Q2 on the back of easing liquidity conditions (Figure 9).
The weighted average Treasury bills yield rate fell to 15.7% in June 2017 from 20.8% in March 2017.
The weighted average Government bond yield rate declined to 19.3% from 20.4%.
DOMESTIC ECONOMIC DEVELOPMENTSGovernment securities market
19
Figure 9: Government securities yield rates (%)
5
10
15
20
25
30
Jun
-12
Sep
-12
Dec
-12
Mar
-13
Jun
-13
Sep
-13
Dec
-13
Mar
-14
Jun
-14
Sep
-14
Dec
-14
Mar
-15
Jun
-15
Sep
-15
Dec
-15
Mar
-16
Jun
-16
Sep
-16
Dec
-16
Mar
-17
Jun
-17
Composite T- Bill Composite Bond rate
DOMESTIC ECONOMIC DEVELOPMENTSBanks’ Nominal Interest Rates
20
The average lending rate declined to 26.6% in June from 28.8% in March 2017.
Lending rates ranged from 8 – 37% (10% –38.5% in Q1).
Savings rates on negotiated deposits declined to a range of 6 – 29.6% (11.0%-31.0% in Q1).
Figure 10: Nominal Interest Rates (%)
5
10
15
20
25
30
Jun
-12
Sep
-12
Dec
-12
Mar
-13
Jun
-13
Sep
-13
Dec
-13
Mar
-14
Jun
-14
Sep
-14
Dec
-14
Mar
-15
Jun
-15
Sep
-15
Dec
-15
Mar
-16
Jun
-16
Sep
-16
Dec
-16
Mar
-17
Jun
-17
Lending Rate Policy Rate
Interbank Rate 180-day deposit rate
DOMESTIC ECONOMIC DEVELOPMENTSMoney supply and credit
21
Money supply grew by 2.0%on a quarterly basis comparedwith a growth rate of 5.1% inQ1.
Growth mainly driven bylending to Government and uptick in credit to the privatesector.
On a year-on-year basis, money supply grew by 8.3% in June 2017, up from a growth of 4.2% in March 2017.
Year-on-year growth in money supply remains low to support strong economic activity.
Figure 11: Money Supply
-10
-5
0
5
10
15
20
25
30
35
40
45
0
10
20
30
40
50
60
Dec
-13
Mar
-14
Jun
-14
Sep
-14
Dec
-14
Mar
-15
Jun
-15
Sep
-15
Dec
-15
Mar
-16
Jun
-16
Dec
-16
Mar
-17
Jun
-17
K B
illi
on
M3 (K billion) LHS M3 Growth (Q/Q, %) RHS
M3 Growth (Y/Y, %) RHS
Per
cen
t
DOMESTIC ECONOMIC DEVELOPMENTSMoney supply and credit
22
In Q2, total credit grew by 6.5%, same magnitude as recorded in Q1 2017 (Table 4).
Credit to Government expanded at a slower pace of 11.3% compared with a growth of 18.1% in Q1 2017.
Credit to private enterprises grew by 1.6%, partially reversing a contraction of 4.8% in Q1.
Recovery in credit growth to the private sector was mainly due to improved liquidity conditions, decline in lending rates and banks’ willingness to take on more risk as growth prospects brightened.
23
Table 4: Credit growth
DOMESTIC ECONOMIC DEVELOPMENTSMoney supply and credit
Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017
Total Credit
(Incl. Govt)0.7 4.9 1.1 6.5 6.5
Total -(Excl.
Govt)-3.7 -1.7 -5.4 -3.2 1.6
Public
Enterprises-0.3 -3.1 -9.2 -10.0 28.9
Government 9.0 15.7 10.2 18.1 11.3
Private
Enterprises-5.2 -1.3 -4.6 -4.8 1.6
Households -2.1 -0.9 -7.1 -0.3 1.3
NBFIs 10.3 -0.1 17.6 -7.9 5.9
The Kwacha appreciated further in Q2 due to increased supply of foreign exchange and higher copper prices (Figure 12).
Against the US dollar, the Kwacha gained by 5.0% to an average of K9.31 in June 2017.
Foreign financials and mining companies’ remained the major suppliers, while the Government continued to be the lead buyer (Figure 13)
24
Figure 12: Exchange rate developments
DOMESTIC ECONOMIC DEVELOPMENTSForeign Exchange Market
0.0000
0.2000
0.4000
0.6000
0.8000
1.0000
1.2000
5.0000
7.0000
9.0000
11.0000
13.0000
15.0000
17.0000
19.0000
21.0000
23.0000
30
-Ju
n-1
4
30
-Se
p-1
4
31-D
ec
-14
31-M
ar
-15
30
-Ju
n-1
5
30
-Se
p-1
5
31-D
ec
-15
31-M
ar
-16
30
-Ju
n-1
6
30
-Se
p-1
6
31-D
ec
-16
31-M
ar
-17
30
-Ju
n-1
7
USD/ZMW GBP/ZMW
EUR/ZMW ZAR/ZMW(RHS)
DOMESTIC ECONOMIC DEVELOPMENTSForeign Exchange Market
25
Figure 13: Supply and Demand (US$’million)
(900.00) (400.00) 100.00 600.00
Other
Foreign Financials
Mining and quarrying
Agric, hunting and forestry
Construction
Households
Manufacturing
Wholesale and retail trade
Public administration
2017 Q1 2017 Q2
DOMESTIC ECONOMIC DEVELOPMENTSReal Sector Activity
26
Available real sector data indicate that output in mining,manufacturing, and energy sectors picked up in Q2. Retail salesalso picked up.
copper production rose by 18.2% in Q2 to 197,015.2mt, driven byrebound in prices, continued ramp-up of production, and theresumption of operations at Nchanga mine (Figure 14).
However, electricity generation picked up as water levels inreservoirs improved following above normal rainfall during the2016/17 rainy season.
production of cement increased by 16.2% to 451,529 mt in Q2 on account of the rise in demand occasioned by favourable conditions for construction activities.
DOMESTIC ECONOMIC DEVELOPMENTSReal Sector Activity
27
Figure 14: Mining Sector Output
-
5,000
10,000
15,000
20,000
25,000
0
50,000
100,000
150,000
200,000
250,000
20
15
Q1
20
15
Q2
20
15
Q3
20
15
Q4
20
16
Q1
20
16
Q2
20
16
Q3
20
16
Q4
20
17
Q1
20
17
Q2
Copper (MT) Gemstones (KG)- RHS
DOMESTIC ECONOMIC DEVELOPMENTSReal Sector Activity
28
Electricity generation rose further by 9.0% to 3.1 million Mwh due to rise in water levels in reservoirs; imports declined further but diesel consumption increased, attributed to electricity tariff hike
Figure 15: Electricity Generation and Diesel Consumption
160,000
180,000
200,000
220,000
240,000
260,000
280,000
2,000,000
2,250,000
2,500,000
2,750,000
3,000,000
3,250,000
3,500,000
20
15
Q2
20
15
Q3
20
15
Q4
20
16
Q1
20
16
Q2
20
16
Q3
20
16
Q4
20
17
Q1
20
17
Q2
Electricity Generation (MWh) Diesel Consumption (Litres '000)-RHS
DOMESTIC ECONOMIC DEVELOPMENTSReal Sector Activity
29
Production of food and beverages increased as electricity supply improved after an extended period of power rationing
Figure 16: Manufacturing Activity
-
100,000
200,000
300,000
400,000
500,000
600,000
2016 Q2 2016 Q3 2016 Q4 2017 Q1 2017 Q2
Opaque beer Soft Drinks Clear beer Fresh Milk
Current account deficit widened to US $274.0 million from US$146.0 million as export earnings fell while imports expanded.
30
Table 5: Balance of Payments (US$’million)
DOMESTIC ECONOMIC DEVELOPMENTSExternal Sector
Q1 2017 Q2 2017
Current Account Bal -146.3 -274.4
Balance on Goods 298.1 90.1
Total Exports 1,997.9 1,934.5
Copper 1,469.1 1,474.5
Cobalt 36.1 24.9
Gold 45.5 38.9
NTEs 431.3 380.4
Total Imports 1,699.7 1,844.4
Primary Income -353.6 -285.6
Secondary Income 59.6 66.9
Services Account -150.4 -145.8
Capital Acc 14.8 14.8
Financial Acc -111.5 -444.9
Net Errors/Omissions -1.2 3.5
Overall Balance 21.1 -188.8
Change in Reserve Assets and Related items -30.5 174.1
DOMESTIC ECONOMIC DEVELOPMENTSFiscal performance
31
Preliminary data indicate that the fiscal deficit, on a cash basis, at 0.8% of GDP, was lower than the target 2.0% of GDP in Q2.
The shortfall in external financing led to a greater reliance on domestic financing, which rose to K3.8 billion in Q2 from K3.2 billion in Q1 2017.
DOMESTIC ECONOMIC DEVELOPMENTSInflation
32
Inflation declined marginally to an average of 6.7% from 6.8% in Q1 2017.
At end-Q1, inflation was 6.8%, 0.1 percentage points higher than the end-Q1 2017 outturn of 6.7% (Figure 17).
Food inflation decelerated to 5.8% from 6.7% while non-food inflation rose to 8.0% from 6.6%.
In July 2017, overall inflation declined to 6.6% from 6.8% in June; food inflation fell to 5.3% from 5.8% while non-food inflation rose marginally to 8.1% from 8.0% over the same period.
DOMESTIC ECONOMIC DEVELOPMENTSInflation
33
slowdown in overall inflation in Q2 was largely the result ofthe increase in the supply of food items and the appreciation ofthe exchange rate.
However, month-on-month inflation rose to 0.6% at end-Q2 from 0.3% at end-Q1 2017, reflecting the increase in electricity tariffs (Figure 18).
In July 2017, month-on-month inflation declined to 0.1% from 0.6% in June.
Inflation is projected to remain within the target range of 6-8% over the medium-term.
DOMESTIC ECONOMIC DEVELOPMENTSInflation
34
Figure 17: Year-on-year Inflation rate
5
10
15
20
25
30
May
-15
Jul-
15
Sep
-15
No
v-1
5
Jan
-16
Mar
-16
May
-16
Jul-
16
Sep
-16
No
v-1
6
Jan
-17
Mar
-17
May
-17
Jul-
17
Per
cen
t
Overall Inflation Food inflation Non-food inflation
DOMESTIC ECONOMIC DEVELOPMENTSInflation
35
Figure 18: Month-on-month Inflation rate
(1.0)
-
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Mar
-15
Ap
r-1
5
May
-15
Jun-1
5
Jul-
15
Au
g-1
5
Sep
-15
Oct
-15
No
v-1
5
Dec
-15
Jan
-16
Feb
-16
Mar
-16
Ap
r-1
6
May
-16
Jun-1
6
Jul-
16
Au
g-1
6
Sep
-16
Oct
-16
No
v-1
6
Dec
-16
Jan
-17
Feb
-17
Mar
-17
Ap
r-1
7
May
-17
Jun-1
7
Jul-
17
Per
cen
t
Overall Food Non-food
GDP growth for 2016 revised to 3.6% . For 2017 and 2018, GDP growth has been revised upward to 4.3% (3.9%) and 5.1% (4.6%).
36
Figure 19: GDP Growth
MACROECONOMIC OUTLOOKGDP growth
7.6
5.14.7
2.9
3.63.64.3
5.1 5.1
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
2012 2013 2014 2015 2016 2017f 2018f 2019f
Real GDP Growth (%) GDP Growth Projection (%)
MACROECONOMIC OUTLOOKGDP growth
37
Growth is expected to emanate from:
increased agricultural output
increased generation of electricity
higher mining output
construction activities
manufacturing activity
38
THANK YOU AND GOD BLESS…