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Bank of Zambia raises cost of money by 100 base points amid persistent inflationary pressure


The Bank of Zambia (BoZ) has hiked the benchmark of the cost of money by 100 base points as a result of persistent inflationary pressures.

This had been done through a hike in the monetary policy rate, for the fourth quarter, to 11 percent from 10.0 percent the previous quarter.

This is in an effort to curb the elevated inflation rate whose pressures were expected to intensify over the forecast horizon covering the fourth quarter of 2023.

Central Bank Governor, Denny Kalyalya, expressed concern that inflation, currently at 12.6 percent, could be hard to bring down if no stringent measures were put in place now.

Inflation was projected to average 10.9 percent, 11.4 percent, and 9.6 percent in 2023, 2024, and 2025, respectively.

Kalyalya cited higher food, mostly maize and its products, and retail fuel prices as well as the depreciation of the Kwacha against the United States dollar as being the major drivers of these inflationary pressures.

Read more: Bank of Zambia raises statutory reserve ratio to 14.5% to relieve pressure on local currency, check inflation

At the Monetary Policy Rate announcement for the fourth quarter of 2024 on Wednesday in Lusaka, he announced the hiking of the policy rate by 100 base points to 11 percent from 10.0 percent the previous quarter.

This was the third time the Central Bank was increasing the monetary policy rate this year.

“If left unchecked, inflation could become anchored above the target band, thereby making it harder to achieve macroeconomic stability. Therefore, in this environment, a much stronger policy response is warranted to anchor inflation expectations and bring inflation back into the six to eight percent target band.

“It is painful but necessary evil otherwise we will end up eroding even the benefits we have gained if we leave it like this,” Kalyalya said.

Meanwhile, Kalyalya is also concerned about the devaluation of the Kwacha which depreciated by 5.8 percent against the United States dollar in the third quarter of 2024 with its pressures persisting in the fourth quarter.

Between end-September and November 21, 2023, the Kwacha depreciated by 10.9 percent to K23.30 per United States dollar.

Kalyalya attributed the depreciation to sustained excess demand for foreign exchange, mostly by the energy and manufacturing sectors, amid low supply, especially from the mining sector and the strengthening of the United States dollar on the international market.

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