The Bank of Zambia (BoZ) has raised the interest rate by 100 basis points to 13.5% as the country’s inflation continues to accelerate. Zambia’s inflation rose to 13.5% in Q1 2024 from 12.9% in Q4 2023. In 2024, the country’s inflation is projected to further increase to 13.7%.
According to the central bank, a combination of the depreciation of the Zambia kwacha and rising fuel and food prices were the main drivers of inflation, forcing BoZ to increase the interest rate. The kwacha has been on a downward spiral in 2024 and last week, it traded at 27 kwacha to the dollar, a record low.
“This decision augments earlier actions at containing inflation through the exchange rate and addressing rising inflation expectations,” the central bank said in a statement.
It is the second time this year that BoZ has raised the country’s interest rate as the kwacha and price increases continue to run amok. This has caused the inflation rate to stray outside the 6%-8% range set by the central bank. Despite having reached a historic deal to restructure its national debt with leading creditors in 2022, Zambia continues to struggle to rein in its inflation and currency depreciation.
However, according to BoZ, the outlook for Zambia’s fortunes in 2025 is more positive. The bank expects inflation to slow down significantly to 9.9%, driven by a projected recovery in output, declining global food prices, and a more favourable external sector environment.
To hedge the impacts of inflation on the population, BoZ has provided market support of $369 million. The bank also stated that Zambia’s foreign exchange reserves had increased to $3.6 billion, enough to cover the country’s import bill for 4 months.