Bank of Zambia Hikes Interest Rate

The Bank of Zambia (BoZ) has increased its benchmark interest rate from 8% to 8.5% in a bid to bring spiralling inflation under control. 

Inflation is at its highest rate since 2016, reaching 21.5% in January. The kwacha is also suffering, having weakened 32% against the dollar in the past 12 months.  

Increasing costs have become a cause for concern, with rising prices threatening to leave many hungry during difficult economic times. Last week the Jesuit Centre for Theological Reflection (JCTR) warned that more Zambians face the prospect of becoming trapped in poverty as a result of the high levels of inflation in the country which have pushed the cost of living to over K8,394.01.   

The increase in the Bank’s benchmark rate is the first since November 2019 and follows similar moves made by Mozambique in January. Commenting on the decision BoZ Governor Christopher Mvunga said that while the decision came after lengthy deliberations it could be followed by further increases in the rate given that inflation remains well above the BoZ target of between 6% and 8%. 

The Government is currently engaged in the latest round of talks with the International Monetary Fund (IMF) regarding a potential bail out deal. Talks have been on and off throughout President Lungu’s presidency. However, the situation has become urgent with Zambia’s external debt now standing at around the $12 billion mark. While President Lungu has recently attempted to shift blame onto the coronavirus pandemic, even before the virus hit the country debt had more than doubled during President Edgar Lungu’s time in office, growing from $4.8 billion in 2014 to $11.8 billion in 2019.    

In fact, Zambian economist Grieve Chelwa estimates that total external debt has grown 1,000% since the Patriotic Front came to power in 2011.