BOZ Playing ‘Catch-Up’ On Spiralling Inflation

New research from the Standard Bank Group – Africa’s largest bank – suggests that the Bank of Zambia is playing ‘catch up’ by increasing interest rates in an attempt to combat the country’s runaway inflation.

In an interview with Bloomberg news, Standard’s Jibran Quereishi said that the BoZ’s 0.5% interest rate hike in February was “surprising” and suggested that the central bank was playing “catch-up to an already tighter policy stance”. 

This is in stark contrast to the other 17 African countries surveyed, where central banks are favouring a neutral stance towards interest rates with an accommodative bias, which could even allow price growth to rise beyond target. 

An increase in interest rates means that ordinary Zambians will be paying greater amounts on their debts and mortgages. It is the latest sign that the government is failing to handle the inflation crisis, which has been spurred on by Zambia’s massive foreign debts.  

Annual inflation climbed to 15.7% in April, marking 13 consecutive months of increase and the highest rate of inflation in almost four years. 

This has in turn led to a massive increase in the cost of food and other essentials. In April, UPND spokesperson Anthony Bwalya estimated that the cost of living has risen by over 256% in the 10 years that the Patriotic Front has been in power. 

The Jesuit Centre for Theological Reflection (JCTR) has also warned that these prices are continuing to grow, with the cost of a Basic Needs and Nutrition Basket climbing to K8,743.89 in Lusaka in April. 

Much of this inflation has been driven by excessive government borrowing. Zambia’s total debts now stand at over $20 billion, with half of the country’s total income being spent on servicing these debts in 2020. This borrowing forces the government to print more money, driving up prices in the long run.