Bank of Zambia Maintains Policy Rate at 13.5% Despite High Inflation
The Monetary Policy Committee (MPC) of the Bank of Zambia has opted to maintain the Monetary Policy Rate at 13.5% following its meeting on 12-13 August 2024.
Despite inflationary pressures remaining above the target range of 6-8%, the MPC judged that the current monetary policy stance is appropriate given the prevailing economic conditions.
The decision takes into account several factors, including the ongoing drought, previous hikes in the Policy Rate, increased statutory reserve ratios, and recent reforms in the foreign exchange market. Inflation rose to an average of 14.6% in the second quarter of 2024, up from 13.5% in the first quarter. July saw inflation climb further to 15.4% from 15.2% in June.
The depreciation of the Kwacha, coupled with rising prices of food, particularly maize and vegetables, and energy, especially fuel, continues to drive inflation. These factors, along with extended electricity load management and ongoing global geopolitical conflicts, pose significant risks to the inflation outlook.
For the entirety of 2024, inflation is expected to average 15.3%, a marked increase from the 13.7% forecast in the May 2024 MPC meeting. However, inflation is projected to moderate to 12.7% in 2025, although this remains higher than the 9.8% forecast in May. By the first half of 2026, inflation is expected to average 10.8%.
In choosing not to raise the Policy Rate, the MPC also considered the impact on financial stability and economic growth, particularly in the context of the ongoing drought.
The Committee emphasised the importance of fiscal consolidation measures, including the completion of external debt restructuring and the implementation of structural reforms, in lowering inflation, maintaining financial stability, and fostering economic growth and resilience.
The MPC reiterated that future decisions on the Policy Rate would be guided by inflation outcomes, forecasts, and associated risks, including those related to financial stability. The Bank of Zambia remains prepared to take appropriate action should inflation continue to exceed the target range.
The August 2024 Monetary Policy Report, detailing recent macroeconomic developments and the inflation outlook through to the second quarter of 2026, will be published on the Bank’s website (www.boz.zm) by the end of the month.
