Analysing the Effect of Monetary Policy on Price Stability in Choma District of Zambia

Price stability is an important part in growing the economy; it has an effect on customer confidence, investment decisions and the efficiency of financial structure. The main objective of this study was to analyse the effects of monetary policy on price stability in Choma District. The study focussed two specific objectives, the first was to evaluate the influence of Statutory Reserve Ratios on pricing and to assess the effects of interest rate adjustments on price stability. The study used a mixed-method design. The target was five commercial banks, two microlending institutions and four different business owners. When analysis was done, the findings showed that SRR adjustments had an effect on the pricing behavior. 30% of respondents showed price changes, while 15% showed frequent changes following SRR adjustments. A Pearson Chi-Square test was conducted and confirmed a strong relationship between SRR adjustments and price changes (p = 0.013). In addition to this, how stakeholders perceive SRR’s effectiveness in line with controlling inflation was significantly associated with cash flows and also lending behavior (p = 0.028). Interest rate adjustments were also found to have an effect on pricing with over 40% respondents reporting occasional price changes and they also reported a decline in demand of about 50% due to these changes. A significant relationship was observed between the use of interest rate changes and adaptability in pricing (p = 0.023). The study recommended improvement in financial literacy and support, proper consultation with monetary authorities and institutions, the adoption of flexible pricing strategies and lastly a good response to monetary and non-monetary factors that affect price stability. A significant relationship was observed between strategic use of interest rate trends and adaptability in pricing decisions (p = 0.023). The study recommends enhanced consultation with monetary authorities, improved financial literacy among business owners, adoption of flexible pricing strategies, and greater responsiveness to both monetary and non-monetary factors affecting price stability.