Bank of Zambia's Aggressive Policy Tightening to Combat Inflationary Pressures Amidst Economic Strain
The Bank of Zambia's Monetary Policy Committee (MPC) announced a 50-basis-point increase to the policy rate, raising it to 14.0% in a decisive response to persistent inflationary pressures. This hike is driven by inflation rates exceeding the central bank's target band of 6-8%, reaching an annual rate of 15.7% in October 2024. Factors such as a depreciating kwacha, drought-affected electricity supply, and high food prices are exacerbating inflation.
In its latest meeting, the MPC considered ongoing liquidity management efforts, foreign exchange reforms, economic fragility due to drought, and financial stability. As a result, the policy rate adjustment aims to steer inflation towards target levels by dampening excessive price growth and anchoring expectations. Projected inflation for 2025 has risen to 13.9%, an increase attributed to depreciation and rising utility tariffs amid power generation challenges.
Economic Outlook and MPC's Policy Stance
The Bank forecasts inflation will gradually decline, reaching 9.0% by 2026—still above the target range. The sustained upward risk to inflation stems from currency pressures and food price volatility. In line with these projections, the Bank signaled its readiness to adjust policies as needed to safeguard financial stability, with future rate decisions depending on economic indicators and risks.
This proactive approach underscores the Bank's commitment to balancing inflation control with economic growth, a critical task in the face of external economic volatility and domestic fiscal constraints. The upcoming November 2024 Monetary Policy Report will offer further insights into Zambia's economic trajectory, covering recent macroeconomic trends and inflation forecasts through 2026.
For detailed information, refer to the full statement here.
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