Zambia’s central bank has increased its overnight lending facility rate to 1,000 basis points above the policy rate in a bid to curb inflation, deputy governor Bwalya Ng’andu said in a circular issued this week.
“This measure is in line with the Bank’s monetary stance aimed at attenuating inflationary pressures,” Ng’andu said in the circular issued to commercial banks.
The overnight rate hike, following a policy rate increase on Nov. 3, comes after a steep fall in the kwacha brought on by a decline in the price of copper, the landlocked African country’s main export.
Despite raising the central bank policy rate 300 basis points this month in response to a near-doubling of inflation in October the kwacha had remained under significant pressure, Standard Chartered Bank Africa chief economist Razia Khan said.
“The move signals increasing concern over the extent of pressure on the Zambian kwacha and the willingness of the authorities to use all policy tools available to reverse its depreciation,” Khan said.
The overnight lending facility hike allowed interbank rates – previously at 17.5 percent – to rise to as much as 25.5 percent, she said.
The kwacha gained more than 1 percent in early trade on Friday to 12.34 against the dollar, its strongest since Oct. 28.