Zambia Hikes Benchmark Interest Rate to 14%
Bank of Zambia has raised its benchmark lending rate by 50 basis points to 14.00% in a decision announced on Wednesday. In its monetary policy statement, the committee decided to increase the Monetary Policy Rate by 50 basis points to 14.0 percent.
The Bank said the decision was necessitated by actual and projected inflation which continue to remain above the 6-8 percent target band. “The decision to raise the Policy Rate is aimed at steering inflation back towards the target band and anchoring inflation expectations”, Bank of Zambia said.
In arriving at the decision, the Committee also took into account complementary liquidity management measures under consideration; foreign exchange market reforms underway, and the fragility of the economy in the wake of the severe impact of the recent drought; and (iv) the stability of the financial system.
The authority noted that annual overall inflation continued to rise in the third quarter of 2024, averaging 15.5 percent from 14.6 percent in the second quarter of 2024. In October, annual inflation rose to 15.7 percent from 15.6 percent in September.
Zambia Central Bank said the key drivers of inflation were low supply of maize grain, fish and vegetables; increased demand for solid fuels due to sustained electricity load management; and depreciation of the Kwacha against major currencies.
“While inflation is projected to remain at an annual average rate of around 15.0 percent in 2024, the projection for 2025 is now higher at 13.9 percent than the 12.7 percent reported in the August”
The elevated inflation profile for 2025 is largely due to the recent depreciation of the exchange rate and the increase in electricity tariffs, occasioned by the higher-than-expected impact of the drought on electricity generation.
The drought has also resulted in real GDP growth projection for 2024 being significantly revised downwards to 1.2 percent from the 2.3 percent in July.
In the first three quarters of 2026, inflation is expected to decline to 9.0 percent, which will still be outside the 6-8 percent target band. The risks to the inflation outlook are still heavily weighed to the upside and include higher maize grain prices and persistent exchange rate depreciation.
To contain inflationary pressures and anchor expectations, the Committee, therefore, decided to raise the policy rate by 50 basis points to 14.0 percent.
The Bank said the policy rate will be complemented by liquidity management measures and ongoing reforms in the operations of the foreign exchange market. #Zambia Hikes Benchmark Interest Rate to 14% Oil Rises on Middle East Tensions, OPEC+ Output Decision
