• The MPC decided to maintain the Monetary Policy Rate at 8.50 percent.
• Inflation is projected to decelerate faster than envisaged in May 2021.
• BoZ remains committed to adjusting the Policy Rate upwards should the disinflationary process be slower than expected.
Monetary Policy Committee (MPC) has decided to maintain the Monetary Policy Rate (MPR) at 8.5% for this quarter.
Speaking during a media briefing, Bank of Zambia Governor Christopher Mvunga said the decision to maintain the monetary rate is as a result of the inflation rate which is expected to decelerate faster than anticipated in May this year mostly based on the favorable outlook of the exchange rate, coupled with improved prospects for fiscal consolidation.
Mr. Mvunga said Inflation has maintained an upward trend, but recent developments in the exchange rate point to near term deflationary pressures.
“Over the next eight quarters, inflation is projected to decelerate faster than was earlier anticipated although it will remain above the 6-8 percent target range. Inflation is now projected to average 22.6 percent, 15.5 percent and 11.9 percent in 2021, 2022, and the first half of 2023, respectively.”
He added that in arriving at the decision, the Committee remained mindful of the subdued economic activity and existing vulnerabilities in the financial system.
“Implementation of fiscal adjustment measures premised on fiscal discipline, the dismantling of domestic arrears, enhancement of revenue collections, achieving a sustainable budget balance, securing an IMF Programme, and external debt restructuring remain critical to restoring macroeconomic stability,” Mr. Mvunga said.
And Mr. Mvunga disclosed that the country’s economy is slowly beginning to recover as it is projected to register modest domestic growth of around 1.6% in 2021.
He however said High frequency indicators suggest weaker growth in the second quarter of 2021 against a preliminary real Gross Domestic Product (GDP) growth of 0.7 percent in the first quarter.
“This notwithstanding, the domestic economy is projected to register a modest growth of 1.6 percent in 2021 and strengthen over the medium-term. This is on account of expected positive performance of the information and communication, electricity, public administration, as well as education sectors. Uncertainty surrounding the emergence of more contagious COVID-19 variants remains a key downside risk to the growth outlook,” he added.
The BoZ Governor further stated that the Bank remains committed to adjusting the Policy Rate upwards should the disinflationary process be slower than expected.
“Decisions on the Policy Rate will continue to be guided by inflation forecasts, outcomes, and identified risks, including those associated with financial stability and the COVID-19 pandemic.”
This is the third time the Monetary Policy Committee is maintaining the Monetary Policy Rate at 8.5 percent this year.
Monetary policy rate (MPR) is the control of the quantity of money available in an economy and the channels by which new money is supplied.
MPR is aimed at influencing macroeconomic factors including inflation, the rate of consumption, economic growth, and overall liquidity and also helps to keep the borrowing rate from the bank within a certain limit.