• This is to help steer inflation to single digits in 2022.
• Inflation will still be above the upper bound of the 6 to 8 percent target range.
• The Kwacha appreciated by 25.9 percent between 1st July and 30th September, 2021.

Bank of Zambia has decided to raise its Monetary Policy Rate by 50 basis points to 9 percent from 8.5 percent in the last quarter.

Speaking at the quarterly media briefing, Bank Governor Denny Kalyalya said the Bank’s Monetary Policy Committee arrived at this decision to help steer inflation to single digits in 2022 within the 6 to 8 percent target range by mid-2023 as outlined in the 2022 national budget.

Dr. Kalyalya stated that although inflation is projected to decelerate sharply over the forecast horizon, it will still be above the upper bound of the 6 to 8 percent target range.

“The upside risks to the inflation outlook include the possible increase in fuel pump prices and electricity tariffs necessary to restore fiscal sustainability, as well as the predicted fourth wave of Covid-19, which could disrupt supply chains and trigger price increases.”

“Further, effective implementation of fiscal reforms will significantly complement the achievement of a low and stable inflation objective,” Dr. Kalyalya said.

He noted that inflation rose further by 0.2 percentage points to an average of 23.7 percent in the third quarter mainly as a result of the rise in food inflation to 30.8 percent from 29 percent in the preceding quarter due to constraints in supply for meat and poultry products.

“On the other hand, non-food inflation declined to 15.6 percent from 17.2 percent, mainly as a result of the appreciation of the Kwacha against the US dollar. The impact of the appreciation of the Kwacha continued to exert downward pressure on prices leading inflation declining to 21.1 percent in October from 22.1 percent in September, he noted.

The Central Bank Governor further stated that inflation is expected to decelerate sharply over the next eight quarters due to dissipation of base effects.

Meanwhile, Dr. Kalyalya disclosed that the Kwacha appreciated by 25.9 percent between 1st July and 30th September, 2021, after recording a depreciation trend, weakening by 7.1 percent in the year to June 2021.

He said during the period under review, the currency appreciated to K16. 78 Ngwee per United States Dollar due to improved market sentiments and sustained supply of foreign exchange, particularly from the mining sector, Companies and foreign investors in Government securities.

Dr. Kalyalya said the local unit lost strength reaching K17.64 Ngwee by November 19, 2021 as demand for foreign exchange from energy, public, and manufacturing as well as wholesale and retail sectors picked up.

“Demand persisted, reflecting payments relating to fuel arrears, and procurement of agricultural inputs under FISP, as supply diminished in the latter part of the quarter,” Dr. Kalyalya explained.

He further explained that the Central bank had to sell back receipts from the mining sector amounting to US$10 million compared to US$358.2 million in the second quarter to moderate volatility while maintaining flexibility in the exchange rate.

Meanwhile, Dr. Kalyalya attributed the increase in demand for Treasury Bills and Bonds in the third quarter of 2021 positive government pronouncements to accelerate discussions for an International Monetary Fund (IMF) program among other factors.

“Demand for Government securities, particularly bonds remained strong. Subscription rates for bonds and Treasury bills rose to 278.3 percent and 138.0 percent from 163.0 percent and 100 percent in the previous quarter, respectively.”

“Non-resident investors holdings of Government securities rose by 12.4 percent to K49.2 billion, representing 25.9 percent of outstanding securities, with 97.8 percent of their holdings held in Government bonds,” he stated.