• The call for the Central Bank to drop the MPR may be justifiable in certain circumstances.
• However, the country is in a very difficult position due to external inflationary pressure and other domestic factors.
• This makes it very difficult to deal with price stability which is the central role of the MPR.

An Economist says lowering the Monetary Policy Rate (MPR) to 6.5 percent from the current 10% can trigger higher inflation as the rate is currently moving upwards and threatening price stability.
Speaking in an interview with Money FM News, Emmanuel Zulu noted that the country would not have attained a single digit inflation rate if Bank of Zambia did not intervene by raising the monetary policy rate to ensure that there is stability.
Mr. Zulu stated that that calls by some stakeholders for the Central Bank to lower the lending rate may be justifiable in certain circumstances but the country is in a very difficult position due to external inflationary pressure.
“The call for the Central Bank to drop the MPR may be justifiable in certain circumstances but what we have currently is a very difficult position, where we have external inflationary pressure as well as other factors domestically that are leading to price hikes and instability more especially oil prices that are quite unstable on the international market.”
“This makes it very difficult to deal with price stability which is the central role of the MPR. So whenever there is risk of high volatility in terms of prices, the Central Bank will undertake measures such as raising the MPR, to ensure that there is stability,” Mr. Zulu stated.
He said by raising the policy rate and statutory reserve ration, Bank of Zambia has been trying to control inflation and exchange rate volatility, noting that without these interventions, inflation rate would have been above the 10.8 percent recorded in August.
“The Central Bank in Zambia has consistently applied contractionary monetary policy, meaning that the economy has been faced with high inflationary pressure and that is a tool that they have thought would work .We have seen also the raising of the statutory reserve ratio for the bank and that is also another contractionary tool. The issue that the Central Bank has been trying to deal with is inflation and volatility of the exchange rate.”
“They have prioritized that because the target inflation rate is between 6 to 8 percent. So without those interventions, we would have seen the inflation rate way above what we are seeing today of 10.8 percent. We would have been talking of an inflation rate of may be even 14 percent. The single digit inflation rate would have been far-fetched without those interventions,” he noted.
Consumers’ buying power continues to fall amid continued pressure on the country’s inflation rate which increased to 10.8 percent in August from 10.3 percent in the previous month, largely due to movements in food prices.
Consumers’ buying power continues to fall amid continued pressure on the country’s inflation rate which increased to 10.8 percent largely due to movements in food prices.
In its August 2023 Consumer Price Index, Zambia Statistics Agency (ZamStats) revealed that the year-on-year headline inflation rate for August 2023 increased to 10.8 percent from 10.3 percent in the previous month.