By FRANK MUKUPA
FITCH Solution Group Limited’s projection is detached from the reality on the ground because tightening the monetary policy will make things worse and can lead to lower economic activity, Zanaco Bank head of economic research, Dr Patrick Chileshe has said.
Dr Chileshe, said yesterday if the Bank of Zambia (BoZ) stuck to its inflation targeting regime then there was a need for it to tighten monetary policy in order to fight the depreciation of the kwacha against the dollar.
That would lower prices for imported goods.
Dr Chileshe was speaking in an interview.
He said the Zambian scenario was a bit unique at the moment to actually use the monetary policy as the means of fighting inflation because the main cause of inflation was the shortage of food in the country that led to an increase in mealie meal prices.
Dr Chileshe said the cause of the high prices was the poor performance the country experienced in 2018/2019 farming season.
He said the other factor that led to the increase in food prices was the high cost of production as the result of load shedding that was ongoing by Zesco Limited.
“In the short term I feel the central bank is constrained with the type of tools they can use to actually fight that type of inflation because even if the central bank tighten the monetary policy is that going to lead to an increase in food stuffs? Not at all,” he said.
Dr Chileshe said if such happened then it was going to worsen the situation and lead to lower level economic activity.
He said the level of production in the economy had gone down and the economy was not performing like the previous years.
“So, the central bank may consider the state of the economy in tightening the monetary policy,” Dr Chileshe said.