BOZ Cuts Interest Rate

The Bank of Zambia (BOZ) has cut its interest rate from 11.5% to 9.25%. It is the first cut in more than two years and the biggest cut since 2012.

Governor Denny Kalyalya announced the move Wednesday in response to the coronavirus pandemic.

“With COVID-19, the already challenged domestic macroeconomic environment has worsened,” he stated.

However, inflation continues to rise reaching 15.7% in April, which is well above the bank’s target of 6%-8% and marked the 13th consecutive month of increase.

There is also concern that the move could further increase pressure on the kwacha, which weakened 2.5% against the dollar in April, falling by a total of 24% to make it the worst-performing currency in Africa. The depreciation has been partly driven by investor fears that Zambia will default on its debts, with Moody’s and Fitch ratings agencies both downgrading their assessments of the country in April. 

The central bank projects that the economy will contract by 2.6% this year. The IMF has projected a 3.5% contraction, citing power shortages as a significant problem in addition to the current coronavirus pandemic.

According to government, Zambia’s estimated revenue for 2020 is predicted to fall by at least 20%, or K14.8 billion, as a result of Covid-19.

Meanwhile, Minister of Finance Dr Bwalya Ng’andu has stated that the IMF did not consider Zambia for Covid-19 relief because of concerns regarding debt sustainability.

“Now the reason why the IMF package that they’ve put up to support developing countries to deal with the pandemic is that there is one simple rule that they’re put up and that rule is premised on the issue of debt sustainability. Their assessment is that Zambia’s debt position is unsustainable, and this is what has been at the base of our discussions,” Dr Ng’andu stated when he featured on ZNBC’s Sunday Interview last weekend.