Inflation Falls But Remains Double Target

There has been a slight fall in the rate of inflation in August, mainly as a result of a decrease in food prices.

The annual rate of inflation stood at 15.5% for August, down from 15.8% for July. Falls in prices of cereals including maize, mealie meal and vegetables contributed to the decrease. 

Non-food inflation remains unchanged.

Inflation rates have been high throughout 2020, and well above the Bank of Zambia (BoZ) target of between 6% and 8%. 

Before his dismissal, former BoZ governor Denny Kalyalya last week announced that the country’s economic condition is worse than anticipated, with total GDP expected to contract by 4.2% this quarter - up from earlier projections of 2.6%.

Dr Kalyalya attributed the decline to falling consumer demands, as well as a contraction in wholesale and retail trading.

He added that the sharp rise in the number of Covid-19 cases had had a pronounced impact on Zambia’s economy. 

The governor also noted that credit to the private sector had dropped to about 10.4% of GDP, down from 19.5% last quarter. He said this was due to banks’ fears over the high risk of default and had not been abated by the government’s new lines of credit. 

Dr Kalyalya concluded that in order to achieve economic stability, Zambia must adjust its macroeconomic fundamentals and attain debt sustainability.

Meanwhile, interest rates were slashed from 9.25% to 8%, making it easier for Zambians to borrow money from banks but negatively impacting savers.

Dr Kalyalya said this change in monetary policy would likely be adopted by commercial banks and was intended to safeguard the financial stability of people’s lives owing to the impact of the pandemic.