Africa-Press – Zambia. The Bank of Zambia’s Monetary Policy Committee (MPC), at its August 16th, 2022 Meeting, decided to maintain the Monetary Policy Rate at 9.0 percent. The Committee considered the sharp deceleration in inflation in the second quarter of the year and a further projected decline into the 6-8 percent target range during the first quarter of 2024.
The Committee was also mindful of the lingering vulnerabilities in the financial sector, relatively tight domestic liquidity conditions, and weak domestic growth.
Sustained implementation of’ fiscal consolidation and structural reform measures, supported by the Extended Credit Facility (ECF) from the International Monetary Fund (IMF), are among the key, factors expected to contribute to lower inflation.
However, the Committee noted upside risks to the inflation outlook that include persistently elevated energy prices, higher than expected maize prices, adverse weather conditions, tight global financial conditions and weak demand, as well as supply chain disruptions that could stem from COVID-19 containment measures. The annual average overall inflation fell sharply to 10.5 percent in the second quarter from 14.1 percent in the first quarter.
The dissipation of shocks to prices of meat and poultry products as well as solid fuels, the appreciation of the Kwacha against the US dollar, and improved supply of vegetables were key in driving’ inflation down, average food and non-food inflation declined to 12.8 percent and 7.5 percent from 16.1 percent and 11.6 percent, respectively.
Following the increase in fuel pump prices on June 30 the subsequent rise in transportation costs. annual overall inflation rose to 9.9 percent in July from 9.7 percent in June.
Over the forecast horizon, inflation is projected to decline to averages of 11.4 percent and 8.4 percent in 2022 and 2023, respectively, from the outturn of 22.1 percent in 2021.
In the first half of 2024, inflation is expected to average 7.0 percent. These projections are underpinned mainly by sustained implementation of fiscal consolidation and structural reform measures as well as the benefits associated with securing an IMF Extended Credit Facility.
Working through the exchange and interest rates channels, these factors are also anticipated to boost market confidence and anchor inflation expectations. This will in turn foster a stable macroeconomic environment, essential for sustainable and transformative growth.
Nonetheless, there are upside risks to the inflation outlook. These include persistently elevated energy and food prices due to the prolonged Russia-Ukraine conflict, tighter global financial conditions weakening global growth amid higher global inflation spillovers from intensified COVID-19 pandemic containment measures in other countries, and higher domestic maize prices due to the short supply of this staple grain in some neighboring countries.
Interest rates movements mixed The average interbank rate remained virtually unchanged at 8.9 percent and was maintained within the Monetary Policy Rate Corridor throughout the unchanged
The commercial banks’ average nominal lending rate was also broadly unchanged at 25.2 percent. In contrast, the 180-day deposit rate for amounts exceeding K20,000 decline to 6.8 percent from 7.5 percent.
The weighted average Treasury bill and Government bond yield rates, however, rose by 0.3 and 0.4 percentage points to 13.0 percent and 22.1 percent respectively. The rise in yield rates largely reflected reduced demand as liquidity conditions tightened. Credit slows down and money supply contracts further
In June, domestic credit growth slowed to 0.8 percent, year-on-year, compared the 11.5 percent in March. This was largely attributed to the slowdown in lending to Government and contraction in private sector credit.
Growth in credit to Government decelerated to 12.0 percent , year-on-year, in June against the 16.8 percent in March, Furthermore, credible to the private sector contracted by 2.1 percent, year-on-year, relative to the 1.3 percent growth over the same period. This was primarily due to valuation effects on foreign currency loans, which offset the moderate growth in Kwacha denominated credit.
Money supply (M3) contracted further by 5.2 percent, year-on-year, during the quarter under review. This was largely due to the slowdown in total domestic credit and valuation effects following the appreciation of the Kwacha against the US dollar.
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