• MPR has been focused towards having to drive reduction in the inflation rate to a single digit.
• Unfortunately, it’s not the MPR that has been driving that inflation decline.
• The inflation drop has been driven by a credit squeeze in the market.

An Economist says maintaining the Monetary Policy Rate (MPR) position over a long period of time, entails that the country has a stable macro-economic state in the market.
Speaking to Money FM News, Trevor Hambayi said holding of the interest rate at 9.0 percent was expected, as Bank of Zambia’s strategy has been focused towards driving a reduction in inflation rate to a single digit, which has seen to be dropping in the last few months.
Mr. Hambayi however stated that it is not the interest rate that has been driving the country’s inflation decline, but lack of liquidity in the market.
He noted that despite the drop in inflation, there has been an increase in the cost of living but at a slower rate.
“When you get to a situation where general MPR position is maintained over a long period of time, speaks to you having a stable macro-economic position in the market. So you would think this is it but from our strategy as a country, we have seen the Central Bank which is MPR has been focused towards having to drive reduction in the inflation rate to a single digit. In the last few months we have seen that inflation rate has been dropping, this is speaking to their strategy.”
“The second aspect is we must question ourselves as to what has been driving the inflation decline, and unfortunately it’s not the MPR that has been driving that inflation decline. The inflation drop has been driven by a credit squeeze in the market, there is no capital in the market and this has been depressing the inflation. You will also notice that at the same time the inflation has been dropping we have had an increase in the cost of living, so that cost of living has been increasing at a slightly slower rate but it’s been the fact there is no capital or liquidity in the market to be able to drive inflation, this is very cardinal to understand,” Mr. Hambayi explained.
He further explained that growth in Gross Domestic Product (GDP) is what directly benefits the country because this is what will allow citizens to increase their revenue, to deal with the high cost of living.
Mr. Hambayi noted that at the moment, the country is not getting an increase in the GDP to raise the revenue base as individuals, hence the cost of living has become higher because people’s purchasing power parity is reducing.
He also stated that dynamics around the Monetary Policy Rate will change once there is liquidity in the market driven by the growth in GDP, resulting from sealing an agreement with the International Monetary Fund (IMF) in terms of the debt restructuring process.
“From the trajectory of where the Central Bank is, what they have been doing is working in their favor and they want to maintain the status, so the holding of the MPR at 9.0 percent was expected. I think the deal breaker to this for the Central Bank will be the country having to be able to have an agreement with the IMF in terms of the debt restructuring.”
“When we have done our debt restructuring we will know what our specific liabilities are going to be in terms of debt serving but at that time, will also require being able to drive an economic recovery program that is going to generate this revenue. To do this economic recovery program is that we need to put liquidity in the market, at that time the dynamics around the MPR will change, because of the growth in the GDP, the inflation rate will also start to rise,” he stated.
Bank of Zambia has maintained the Monetary Policy Rate at 9 percent for the third time this year on account of a sharp decline in inflation rate in the second quarter of 2022.