Zambia’s central bank has reduced its benchmark interest rate to 13.25% from 13.5% as inflationary pressures continue to ease despite rising global uncertainties linked to the Middle East conflict.
The latest decision marks the third consecutive rate cut by the Bank of Zambia, even as many central banks globally continue to maintain tighter monetary conditions amid concerns over inflation and geopolitical risks.
Governor Denny Kalyalya announced the decision on Wednesday in Lusaka, stating that the monetary policy committee considered improving inflation trends, exchange rate stability, and expectations of a favourable agricultural harvest before easing borrowing costs further.
What the apex bank is saying
The Bank of Zambia said the latest rate cut was supported by improving domestic economic conditions, although policymakers remain cautious due to uncertainties linked to the conflict in the Middle East.
- Governor Denny Kalyalya said the committee considered the expected favorable corn harvest during the current crop marketing season and the relative stability in the exchange rate before making its decision.
- He added that the “upside risks and uncertainty associated with the Middle East conflict warranted a cautious adjustment.”
- The central bank projected inflation to average 6.8 percent in 2026, slightly lower than the 6.9 percent forecast at the previous MPC meeting.
- Zambia’s foreign exchange reserves increased to $6.2 billion at the end of March, equivalent to 5.2 months of import cover, up from $5.5 billion in the previous quarter.
The central bank also noted that inflation has remained within its 6 percent to 8 percent target range since February and is expected to slow further in the medium term.
Backstory
Zambia joins a small group of countries, including Russia, Guinea, and the Democratic Republic of Congo, that have reduced borrowing costs since the Middle East conflict escalated earlier this year.
The war has disrupted global commodity markets, increasing food, fertilizer, and energy prices following continued tensions around the Strait of Hormuz, a critical global energy shipping route.
- Zambia, a net importer of fuel and agricultural inputs, remains vulnerable to rising global commodity prices.
- The government suspended fuel taxes until the end of June and zero-rated value-added tax on fuel products to reduce domestic price pressures.
- Authorities are also seeking financial support from the International Monetary Fund (IMF) and the World Bank to manage the economic impact of the conflict.
- Zambia is currently in discussions with the IMF for a new programme expected to be concluded after the country’s August elections.
Despite global pressures, the country has benefited from relative exchange rate stability and expectations of stronger agricultural output, particularly in corn production.
What you should know
The latest rate cut signals growing confidence by Zambian authorities that inflationary pressures are moderating, allowing the central bank to support economic growth through lower borrowing costs.
In February, the Bank of Zambia reduced its benchmark interest rate for the second consecutive meeting, cutting it to 13.5% from 14.25% as inflation showed clearer signs of moderation.
The Central Bank of Nigeria is scheduled to hold its 305th Monetary Policy Committee meeting next week, with investors watching for policy direction.
