Lusaka, August 14, 2024 (SMART EAGLES) — The Bank of Zambia (BoZ) has decided to keep its key benchmark interest rate unchanged at 13.5%, despite ongoing inflationary pressures and the impact of a severe drought.
BoZ Governor Dr. Denny Kalyalya announced the decision following the Monetary Policy Committee’s meeting held on August 12-13, 2024. Dr. Kalyalya explained that while inflation remains elevated—reaching 15.4% in July, up from 15.2% in June—the Committee deemed the current monetary policy stance appropriate given the broader economic context.
Dr. Kalyalya highlighted several factors influencing the decision:
- Drought Impact: The ongoing drought has exacerbated inflation, particularly in food and energy sectors.
- Previous Rate Increases: The effects of prior rate hikes and changes in the statutory reserve ratio were considered.
- Financial System Stability: The Committee also weighed the potential impact of further rate increases on financial stability and economic growth.
Current inflation projections have risen, with 2024 inflation expected to average 15.3%, up from an earlier forecast of 13.7%. However, Dr. Kalyalya anticipates a decrease to 12.7% in 2025 and 10.8% in the first half of 2026, contingent on improvements in external conditions and global food prices.
The BoZ’s recent actions include:
- Increased International Reserves: Gross international reserves grew to US$3.9 billion by end-June, bolstered by an IMF disbursement and gold purchases.
- Domestic Credit Growth: Credit to the private sector expanded by 35.8% in nominal terms by June, indicating increased lending.
Economic growth for 2024 is projected at a modest 2.3% due to the drought’s adverse effects on agriculture and energy. A recovery is expected in 2025, supported by the mining and agriculture sectors and expansions in ICT and retail trade.
The BoZ remains vigilant to inflation risks, including electricity load management and global geopolitical tensions, while balancing economic growth and financial stability.
