Bank of Zambia Increases Interest Rates by 0.5%

The Central Bank of Zambia has increased its base interest rate by a half percentage point to support the Kwacha’s exchange rate and curb inflation. 

The Monetary Policy Committee (MPC) held its quarterly meeting from February 10 to 11 and announced the increase from 14% to 14.5% at today's Monetary Policy Announcement and press briefing in Lusaka. 

Bank of Zambia Governor Dr Denny Kalyalya told reporters, “The underlying reason for doing this is to steer inflation back to the 6 to 8% target band, which is the medium-term objective, and help anchor inflation expectations.” 

“The relatively higher profile for 2025 is largely influenced by the recent increase in inflation and the persistent depreciation of the exchange rate,” Kalyalya added.

The implementation of higher emergency electricity tariffs due to the once-in-a-generation drought has substantially impacted inflation rates, particularly non-food inflation, which rose to 14.1 from 12.2 in October 2024. 

As a result, the New Dawn government is working hard to reduce Zambia’s reliance on hydroelectric power. Projects like Maamba Energy Phase II coal-fired plant and ZESCO’s 100MW Chisamba Solar Project will diversify the grid and improve energy resilience.

In an accompanying statement, the MPC also stated that the balance of risks to inflation is tilted to the downside, suggesting that inflation in 2025 may be lower than projected. The MPC says this is “influenced by the expected improvement in food supply … and electricity generation.”