Bank of Zambia Raises Interest In Bid To Curb Inflation
The Bank of Zambia has raised interest rates by 50 basis points to 9.0% in a bid to bring down the stubbornly high rate of inflation.
Annual inflation was running at more than 21% in October, down from a peak above 24% in the middle of the year. However, this is still above the BoZ’s target of 6-8%, with Governor Denny Kalyalya warning that it may not reach this range before 2023.
On Wednesday, Kalyalya told a news conference that the interest rate hike – the first since February – was aimed at bringing inflation under control, but also took into account the need to continue supporting the economy and maintain financial stability.
He said inflation was expected to average 15% next year before falling to 9.3% in the first three quarters of 2023.
This week’s monetary policy meeting was Kalyalya’s first since being reappointed as governor by President Hakainde Hichilema in September. He was previously sacked by President Lungu in August 2020 for no official reason– a move which prompted the International Monetary Fund to issue calls for government to respect the central bank’s independence.
President Hichilema has been desperately trying to restore investor confidence in Zambia since the country defaulted on its debts a year ago. His government is currently engaged in serious talks with the IMF in the hope of securing an extended credit facility.
As part of the new administration’s efforts to demonstrate fiscal responsibility, last month Finance Minister Situmbeko Musokotwane pledged to slash the budget deficit and curb borrowing. The minister promised to cut the deficit to 6.7% of GDP and not to take out any more non-concessional loans.
The country is currently saddled with more than $14 billion of external debt, of which around $6 billion is owed to Chinese entities. On Wednesday the BoZ urged the government to implement fiscal reforms to complement the objective of low and stable inflation. It forecast economic growth of 3.5% next year, rising to 3.7% the year after.