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The Bank of Zambia Monetary Policy Committee has adjusted the Monetary Policy Rate downwards to 10.75 percent, citing a favourable inflation outlook and the need to better align the policy stance with inflation at 6.1 percent.
Bank of Zambia Governor, Dr. Denny Kalyalya, said projections show inflation will continue to be within the target band, prompting the Committee to recalibrate the stance.
Kalyalya told Journaljsts during the BOZ annual media briefings in Lusaka on Wednesday that the MPC however recognised that there were upside risks to the inflation outlook, both external and internal, that could change the course.
“There are upside risks to this inflation outlook which obviously is an important reminder that even when the water is calm there could be some waves that can knock you off if you don’t take precautions,” he said.
Kalyalya said the alignment would give space for players in the financial sector to begin to look more closely at their lending rates and give space to economic actors to start or improve their capacities.
Read more: Zambia cuts monetary policy rate to 13.5% as government cites sharp decline in inflation
The Governor said with inflation at 6.1 percent and the Policy Rate at 13.25 percent, there was a growing gap between where inflation is and the policy rate that needed calibration.
“At 13.25 percent with an inflation at 6.1 we can see that there’s a growing gap between where inflation is and the policy. So we need to calibrate this so that they are better aligned,” he stated.
Kalyalya said the move also takes into account the super cycle in aluminium and other commodities which is unfolding, with implications for Zambia’s growth.
Presenting the inflation outturn, Kalyalya said inflation had continued to ease and was now firmly anchored within its 6 to 8 percent target band.
He said the Bank divided the table into two parts – quarterly averages and end-period points, noting that on an average basis, inflation had come down from 8.2 percent in the first quarter, to 6.6 percent and further down to 6.3 percent in the current quarter.
Kalyalya said the components had also been coming down, with non-food inflation declining much more quickly, though it was inching upwards at the end of this quarter, while on an end-period basis inflation eased from 7.1 percent at end-March to 6.5 percent at end-June and 6.1 percent in September.
“The outcome shows inflation is getting well conquered within the target band, which means expectations are also getting aligned, as confirmed by surveys of market participants,” he said.
On key drivers, Kalyalya cited the continued benefits of the bumper maize harvest which has kept maize prices – a major component of the basket – calm, accompanied by continued appreciation of the Kwacha against major currencies, with fiscal consolidation on track complementing monetary policy efforts.
He said recent data showed contributions from vegetables and fruits, including tomatoes, coming down significantly, with broad-based easing in both food and non-food inflation, while projections showed all elements now within the target band.
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