Effects of Monetary Policy Changes on Loan Supply to Various Economic Sectors in Zambia

Nsama Musawa; Mwaanga Clement; Drayton Muchochoma

Nsama Musawa Mulungushi University, School of Business Studies, Kabwe,
Mwaanga Clement Mulungushi University, School of Business Studies Kabwe
Drayton Muchochoma Mulungushi University, School of Business Studies Kabwe

Keywords: Monitory policy, Weighted Lending Base rate, Loan Supply

Abstract

In this study, we demonstrate how monetary policy changes in Zambia influences loan supply to different sectors of the economy. We also investigate the link between lending base rates changes and loan supply to commercial banks in the short and long run. The Weighted Lending Base rate was used as a proxy for monetary policy while loans and advances by commercial banks as a proxy for loan supply. Monthly data ranging from 2009 to 2018 was analysed using Cointergrated and Error correction model. The cointegration analysis has revealed that the change in the lending rate has a long run effect on the total lending to various sectors. On the other hand, the Error Correction Model has revealed that there is no significant impact of changes in lending rates on loan supply to economic sectors in the short run. The most negatively affected sectors are Agriculture, Forestry, Fishing, Hunting, Mining, Querying and Construction respectively. This implies that the rising lending rate slows down the growth in the production sectors, which in turn slows down economic growth. There is need to consider offering concessionary lending rates to the production sector.