Bank of Zambia holds monetary policy rate at 13.5% as drought keeps inflation elevated

The Bank of Zambia kept its monetary policy rate unchanged at 13.5% on 14 August 2024. Its Monetary Policy Committee judged the current monetary policy stance to be appropriate, even though both actual and projected inflation remained elevated relative to the central bank's 6–8% target band.

Governor Denny Kalyalya said that in deciding to maintain the rate rather than raise it, the committee had taken into account the impact on the stability of the financial system and on growth in 2024, in the wake of the drought.

INFLATION AT 15.4%

Annual inflation rose to 15.4% in July 2024 from 15.2% in June, according to the Zambia Statistics Agency. Inflation had been driven by the depreciation of the kwacha and by the worst drought in the region in decades, which lifted food prices. The retail price of a 25-kilogram bag of breakfast mealie meal, a staple, rose to K334.48 in July from K331.23 in June.

The central bank raised its forecast for average inflation in 2024 to 15.3%, from 13.7% projected in May.

AFTER A SERIES OF INCREASES

The decision to hold followed earlier tightening: the Bank of Zambia raised its policy rate by 150 basis points in February 2024 and by a further 100 basis points in May 2024. The committee's assessment took into account those previous increases.

The kwacha had fallen to record lows between November 2023 and February 2024 and had been highly volatile since. Kalyalya said completion of Zambia's external debt restructuring and implementation of structural reforms remained critical to lowering inflation.