THE Bank of Zambia (BOZ) has raised the Monetary Policy Rate to 10.0 percent from 9.5 percent.
The decision is attributed to the movement of current and projected inflation away from the 6-8 percent target band and the need to contain inflation expectations.
Bank of Zambia Governor Dr Denny Kalyalya said the move is in recognition that inflation not only persisted above the six to eight percent target band during the second quarter, but moved further away from the target in July 2023.
Dr Kalyalya said if left unchecked, this will undermine the gains already made in restoring macroeconomic stability.
He said the Monetary Policy Committee recognises the significant structural reforms undertaken by the Government, which are reflected in lower fiscal deficits, debt restructuring, and broader efforts to promote investment and private sector led growth.
Dr Kalyalya noted that Monetary policy can best support the efforts by steering inflation back to the target band and anchoring inflation expectations.
“This is consistent with the Bank of Zambia mandate to achieve and maintain price and financial system stability,” he said.
He also outlined that inflation increases in the second quarter of 2023 as inflationary pressures persist.
Dr Kalyalya said inflationary pressures are expected to persist over the forecast horizon, with inflation projected to average 10.2 percent in 2023 and 9.3 percent in both 2024 and the first half of 2025, well above the 6-8 percent target band.
“Elevated maize grain prices and tight global financial conditions are the key drivers of the current inflation outlook. The foregoing factors as well as higher global food and energy prices due to the prolonged Russia-Ukraine war remain key upside risks. Whilst the Kwacha appreciated by 4.8 percent against the US dollar in the second quarter, it depreciated by 11.0 percent to K19.48 between end-June and August 22, 2023,” he said.
Dr Kalyalya noted that in the second quarter, US$300 million was provided to the market, largely from mining sector tax receipts.
He said also disclosed that the central bank support to the market, coupled with government uses of foreign exchange and external debt servicing led to the decline of gross international reserves to $2.7 billion, equivalent to 2.9 months of import cover at end of June, 2023.
(Mwebantu, Thursday, 24th August, 2023)