Commercial banks' planned interest rate hikes rattle Zambian businesses

The business community in Zambia on Friday reacted with anxiety to a planned move by commercial banks to raise interest rates, saying this will worsen the already deteriorating business environment in the country.

Commercial banks have indicated that they intend to increase interest rates on all their loan facilities with effect from March 1 in response to tightening liquidity on the financial market. Some banks have announced that they will increase interest rates to between 30 and 40 percent from current rates of between 23 and 27 percent.

Yusuf Dodia, the chairperson of the Private Sector Development Association said the decision to raise interest rates will worsen the already high cost of doing business in the country.

"What we are going to see is that manufacturing and value addition will be affected in this country as the private sector would prefer going into trading which has less risks. The cost of borrowing is becoming too expensive in this country and this is bad for business," he told Xinhua in an interview.

According to him, the decision to raise the interest rates is being fueled by the high inflation rate in the country which has now reached almost 22 percent and the lack of liquidity due to inadequate flow of foreign exchange.

"No bank will lend money below the inflation rate because they fear making losses, so we expect this problem to continue as we foresee inflation continuing to go up," he added.

The Zambia Association of Manufacturers has also expressed concern on the decision by commercial banks to raise interest rates.

Roseta Mwape, the association's president said the move will worsen the hardships faced by small businesses and make it impossible for them to survive.

The hiked interest rates, she added, will exclude local manufacturers from accessing funds because they have no opportunity to get other alternative financing outside the country. Endit