Conversely, the BoZ withdraws funds from the banking system when the interbank rate falls below the corridor in order to drive it up towards the Policy Rate. If the overnight interbank rate moves above the upper limit of the corridor, the BoZ supplies funds to commercial banks in order to influence the overnight interbank rate downwards towards the Policy Rate.
The Policy Rate corridor defines the band within which the overnight interbank rate is allowed to fluctuate in line with the inflation target set by the Government. So, it is interesting to understand how a government takes a decision on the changes in tax policy. It is an important concept from an economic point of view because taxes form an indispensable part of the economic system, both at micro and macro levels. However, the interbank rate may be allowed to move outside the Policy Rate corridor in exceptional circumstances. Tax Multiplier MPC / (1 MPC) Relevance and Use of Tax Multiplier Formula. To effectively manage the overnight interbank rate, the BoZ conducts open market operations to either supply or withdraw liquidity from the banking system in volumes required to keep the overnight interbank rate within the corridor of +/- 2 percentage points around the Policy Rate. The Policy Rate is expected to influence the overnight interbank rate (operating target) which in turn impacts on inflation through changes in market interest rates which are transmitted via the expectations, exchange rate and/or credit channels. Changes to the Policy Rate are guided by a comprehensive set of economic indicators that inform short- and medium-term risks to price stability. A press release is issued a day after the MPC Meeting to explain the MPC decision on the Policy Rate. However, the MPC can meet at any other time during the year should conditions warrant a change in the monetary policy stance. The Monetary Policy Committee (MPC) of the Bank of Zambia meets quarterly to decide on the Policy Rate. The Policy Rate, introduced in April 2012, also provides a credible and stable anchor to financial market participants in setting their own interest rates. To achieve the price stability objective, reflected in low and stable inflation, the BoZ uses the monetary policy framework in which the Policy Rate is the key interest rate in signalling the monetary policy stance. Price Elasticity Price Elasticity measures how the quantity demanded or supplied of a good changes when its price changes. MPC as a concept works similar to Price Elasticity. The primary objective of the Bank of Zambia (BoZ) is to formulate and implement monetary and supervisory policies that achieve and maintain price stability and promote financial system stability in the Republic of Zambia (Bank of Zambia Act No. The Marginal Propensity to Consume (MPC) refers to how sensitive consumption in a given economy is to unitized changes in income levels.