Zambia - Riba

The Central Bank of Zambia left its benchmark interest rate unchanged at 10.25 percent at its August 21st 2019 meeting, to counter inflationary pressures and support growth. In July, headline inflation picked up to a near 3-year high of 8.8% mostly due to higher cost of food and it is projected to remain above the upper bound of the target range of 6-8% until Q2 2021, but to revert to the target towards the end of the period. Policymakers voiced concerns about the further weakening of near-term growth prospects, liquidity challenges and risks to financial stability amid persistent fiscal deficits and elevated debt. The real GDP is expected to decline in 2019 mainly due to the effects of drought in agriculture, constrained electricity generation and lower than anticipated mining output. Finally, the bank hinted that may adjust policy rate upward, if inflation does not revert to the target range.

The Central Bank of Zambia raised the benchmark interest rate by 50 bps to 10.25% at its May 22nd 2019 meeting. The decision came as some upside risks to inflation have begun to materialise, including lower maize output, continued elevated fiscal deficits, high debt service payments and the decline in gross international reserves, which are also exerting severe pressure on the exchange rate. In April 2019, headline inflation rate increased to 7.7% from 7.5% in the prior month and it is projected to rise above the upper bound of the target range of 6-8% over the next year. Policymakers added that indicators of economic activity point to subdued economic growth; the real GDP is expected to slow down in 2019, reflecting lower agriculture production and mining output as well as electricity generation constraints.

The Central Bank of Zambia left its benchmark interest rate unchanged at 9.75 percent on February 20th 2019 meeting. Policymakers noted that main upside risks to inflation outlook persist, including higher than projected budget deficits and debt service payments as well as deterioration in current account balance and the decline in international reserves. The annual inflation rate stood at 7.9 percent in January 2019, unchanged from December and it is projected to remain within the target range of 6-8 percent, but at an elevated level. Policymakers added that economic growth remains subdued as indicators of economic activity suggest positive growth in Q4, though at a reduced pace; the real GDP is expected to be around 4% in 2019. Still, the effective implementation of delayed fiscal adjustment measures remains critical to minimise potential vulnerabilities.