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Executive Summary

The Monetary Policy Committee, at its August 12-13, 2024 Meeting, decided to maintain the Monetary Policy Rate at 13.5 percent. Notwithstanding actual and projected inflation remaining elevated relative to the 6-8 percent target band, the Committee judged that the current monetary policy stance was appropriate. The decision took into account the impact of the drought as well as that of the past successive increases in the Policy Rate, upward adjustments in the statutory reserve ratio, and the recent reforms in the foreign exchange market.

In taking the decision to maintain the Policy Rate as opposed to raising it, the Committee also took into account the impact on the stability of the financial system and growth, particularly in 2024, in the wake of the drought. The continued implementation of fiscal consolidation measures, including the completion of external debt restructuring and structural reforms, remains critical to lowering inflation, maintaining financial stability, and creating an environment that promotes growth and resilience of the economy against shocks.

Inflationary pressures persisted in the second quarter of 2024 resulting in inflation rising to an average of 14.6 percent from 13.5 percent in the first quarter. The persistent depreciation of the Kwacha against major currencies, as well as rising prices of food (maize grain, maize products, and vegetables) and energy, particularly fuel, due to constrained supply continued to drive inflation in the second quarter. Inflation is projected to remain above the target band throughout the forecast horizon despite moderating in 2025 and 2026. The aforementioned factors remain key upside risks to the inflation outlook, exacerbated by extended hours of electricity load management, as well as continued geopolitical conflicts and tight global financial conditions.

Credit to Government reduced in the second quarter of 2024 as money market liquidity conditions remained broadly tight. However, lending to the private sector increased. The expansion in lending to the private sector underpinned the growth in credit and money supply.

Preliminary estimates indicate that revenue was broadly in line with the target despite lower tax collections from the mining sector. However, Government spending was lower than planned mainly due to constrained domestic financing occasioned by tight liquidity conditions.

The current account balance turned positive in the second quarter as net exports expanded and the secondary income rose. A favourable current account is projected for the 2024-2026 period, largely reflecting anticipated retained earnings by foreign owned companies to mitigate increased operating costs due to the impact of loadshedding, particularly in 2024.

Real GDP is estimated to have slowed down further in the second quarter of 2024 to 2.0 percent from 2.2 percent in the first quarter. This was mainly on account of reduced retail sales and tourist arrivals as well as contraction in electricity generation. The growth projection for 2024 remains broadly unchanged at 2.3 percent. Real GDP growth is expected to rebound in 2025 as mining and agriculture sectors recover.