Bank Governor Dr. Denny Kalyalya at the media briefing in Lusaka today said Inflation is projected to remain above the upper bound of the 6-8% target range for much of the forecast horizon.
Dr. Kalyalya however indicated that towards the end of the forecast period, inflation is expected to revert to the target range.
He adds that Monetary Policy Committee also noted, that since the last Committee meeting, the further weakening of near-term growth prospects, liquidity challenges, and risks to financial stability.
Dr. Kalyalya says this in order to address large fiscal deficits, elevated debt and debt service levels, high domestic arrears, and liquidity challenges remains critical for overall macroeconomic stability and economic growth.
“During the quarter under review, annual overall inflation averaged 8.1%, up from 7.7% in the previous quarter. In June, annual inflation rose to 8.6% from 7.5% in March. Inflationary pressures increased during this period, driven, mainly, by rising food prices and the pass-through from the depreciation of the Kwacha against the US dollar. In July 2019, these inflationary pressures persisted and pushed inflation further up to 8.8%” he said.
Dr. Kalyalya further says Inflation is projected to remain above the upper bound of the 6-8% target range for much of the forecast horizon.
“This is on account of the persistent rise in food prices primarily due to low agricultural food output. However, towards the end of the forecast period, inflation is expected to revert to the target range as pressure on food prices should have dissipated” he said.
He explained that key upside risks to the inflation outlook include persistent drought conditions that may result in reduced domestic and regional agricultural production and lower electricity generation2; higher than programmed fiscal deficits; and elevated external debt service payments.
“These are likely to impact inflation through the exchange rate and expectations channels. In addition, the weaker than projected global growth, partly attributed to the escalation of trade tensions between the US and China, is likely to impact commodity prices, including that for copper, which in turn may negatively affect the exchange rate and ultimately inflation. The foregoing notwithstanding, inflationary pressures may be moderated by subdued domestic aggregate demand and relatively loose global financial conditions” he said.