Regulatory Alerts2018-01-01
Bank of Zambia Adjustments to Open Market Operations Rules and Guidelines
The Bank of Zambia has amended its Open Market Operations framework, effective May 2, 2018, to restrict borrowing bids and lending offers within a fifty basis point band of the Policy Rate. All open market transactions are now mandated as overnight instruments, with accrued interest covering public holidays and weekends payable on the next business day. These adjustments enhance monetary policy effectiveness by anchoring the Overnight Interbank Rate and providing a stable interest rate reference for market participants.
[Logo: Bank of Zambia]
Bank of Zambia OFFICE OF THE DEPUTY GOVERNOR - OPERATIONS
BOZ/EXEC/DGO/fmkts/bp
April 16, 2018
CB Circular No.: 05/2018
To: All Heads of Commercial Banks
ADJUSTMENTS TO RULES AND GUIDELINES FOR OPEN MARKET OPERATIONS
Reference is made to the subject mentioned above and CB Circular No. 21/2015, wherein the Bank of Zambia (BoZ) issued revised Operating Rules and Guidelines for Open Market Operations (OMO).
In our continued efforts to promote transparency in the market and ensure clarity of the monetary policy stance, the Bank has made the following amendments to the Operating Rules and Guidelines for Open Market Operations with effect from May 2, 2018:
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BoZ shall only accept bids whose rates are at the BoZ Policy Rate or up to 50 basis points below the BoZ Policy Rate on borrowing operations. With respect to lending operations, only offers whose rates are at the BoZ Policy Rate or up to 50 basis points above the BoZ Policy Rate shall be accepted; and
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All OMO transactions shall only be overnight. Where the maturity date falls on either a public holiday or weekend, accrued interest on such a transaction shall include such holidays and weekend days and be payable on the next business day.
These amendments are intended to enhance the effectiveness of monetary policy by ensuring that the operating target rate, the Overnight Interbank Rate, is appropriately aligned to the BoZ Policy Rate. The Policy Rate is the key interest rate used by the BoZ to signal the monetary policy stance. The other objective of the Policy Rate is to provide a credible and stable anchor to market participants in setting their own interest rates.
For further details and clarifications, contact the Director – Financial Markets.
[Signature]
Bwalya K. E. Ng’andu (Dr.) DEPUTY GOVERNOR – OPERATIONS
Cc Governor
Bank Square, Cairo Road P.O. Box 30080, Lusaka, Zambia Tel: 260-211-226844, 228888 Fax:260-211-237070 E-mail:dgo@boz.zm Web: http://www.boz.zm