Africa-Press – Zambia. The Bank of Zambia has kept its benchmark interest rate unchanged on expectations that inflation will continue slowing and to support a fragile economic recovery.
Governor Denny Kalyalya told a media briefing on Wednesday that the monetary policy committee held the rate at 9%. This was Dr Kalyalya’s second rate decision since being reappointed to the post in September.
Dr Kalyalya said the decision to hold was supported by a “sharp decline in inflation since December” and due to “some fragility” in economic growth. Key factors the Committee took into account include the sharp deceleration in inflation and its projected continued trending towards the 6-8% target range over the forecast period from Q1 2022 to Q4 2023.
“However, upside risks to the inflation outlook remain. These include increase in crude oil prices, possible short term effects of the transition to cost-reflective electricity tariffs, lower crop production due to adverse weather conditions, lingering supply chain bottlenecks induced by the Covid-19 pandemic, and tightening of monetary policies in major economies in response to rising inflation,” Dr Kalyalya stressed.
The MPC forecasts the economy will grow 3.5% in 2022 and 3.6% the following year. Zambia’s inflation rate dropped to 15.1% in January, the lowest in almost two years, compared with 19.3% in November. Dr Kalyalya said the central bank projects inflation will continue to trend toward its 6% to 8% target range over the next eight quarters.
This is “mainly due to the catalytic benefits of securing an International Monetary Fund program such as access to budget support, a reduction of external debt burden through restructuring and unlocking investment,” he said.
The central bank forecasts inflation will average 13.2% in 2022, compared with the 15% projected at its MPC meeting in November, when it hiked the key rate by 50 basis points. Dr Kalyalya said the policy committee also sees inflation averaging 7.3% in 2023, compared with its 9.3% November forecast.
The Governor warned that adverse weather conditions, supply chain bottlenecks, an 8% depreciation in the kwacha against the dollar this year, surging energy prices and an anticipated increase in power tariffs in March are upside risks to the inflation outlook.
Dr Kalyalya said decisions on the Policy Rate will continue to be guided by inflation forecasts, outcomes, and identified risks, including those associated with financial stability and the Covid-19 pandemic.
The Committee also noted and welcomed the Medium-Term Budget Plan (White Paper) saying execution of this Plan is deemed critical to the achievement of macroeconomic stability, including low inflation and a stable financial system. The next Monetary Policy Committee Meeting is scheduled for May 16 and 17, 2022.
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