The Bank of Zambia has increased the monetary policy rate by 0.25 percent to 9.25 at its 2023 Quarter One MPC event held at their offices in Lusaka Zambia.
“The Monetary Policy Committee, at its February 13-J.I, 2023 Meeting, decided to raise the Monetary Policy Rate by 25 basis points to 9.25 percent”, read the Central Bank’s official statement to the press on 15th February 2023 issued by their Public Relations Division. “The decision was underpinned by the projection that inflation will increase and remain above the target range over the forecast horizon”.
According to the Governor Dr Denny Kalyalya, the central bank anticipates a return to double digit inflation over the forecast period if they did not act now. The forecast horizon is from the first quarter of 2023 to the fourth quarter of 2024. The central bank in most of its 2022 monetary statements had indicated that they anticipated inflation to return to the 6 to 8 percent range by 2024.
Despite non food items, that are monitored by the Central Statistical Office responsible for tracking official inflation data, reducing to 6.8 percent from 7.4 percent, food items prices have been quicker to accelerate to double digits (currently 12.1 percent).
The contrast between non food and food item inflation acceleration is due to the delay in the 2022 ripple effect of the Q1 and Q2 Kwacha appreciation as well as Q3 and Q4 depreciation. Food items are more responsive to market changes compared to non-food items. Furthermore, consumer spending tends to be altered in periods of higher food prices as they adjust household priorities.
The Governor indicated that the Wednesday 15th announcement comes on the back of the February 1st announcement as a compliment that was intended to reign in a run-away dollar. This signals that the central bank is now looking beyond targeted single digit inflation and taking precautionary measures as the posture of the economy is threatened.
However, the Governor is bullish on a rebound of copper production whose current elevated prices has not had the hope effect as weaker production in the last two quarters meant lower mining receipts which were the main source of “cash” to sure up kwacha. In the near-term, the much-anticipated event of the first half of 2023 will be the resolution of the debt negotiations that have suffered a speed bump with China making demands for debt restructuring equal treatment for all lenders. China currently hold a third of Zambia’s external debt.