Zambia delivers 50 basis point rate hike to curb inflation

PUBLISHED: Wed, 24 Nov 2021 14:02:01 GMT
Chris Mfula
Reuters
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Key Points
  • Rate last raised in February
  • Inflation still persistently high
  • Copper producer in debt crisis
  • Talking to IMF about lending programme
UNITED STATES – APRIL 25: Situmbeko Musokotwane, finance minister of Zambia, left, speaks as Mustafa Mkulo, finance minister of Tanzania, center, and Charles Koffi Diby, finance minister of the Ivory Coast, listen during a press briefing in Washington, D.C., U.S., Saturday, April 25, 2009. The global economic crisis may force as many as 90 million more people into extreme poverty this year and make it harder to meet goals to improve health and education, the World Bank and International Monetary Fund said yesterday. (Photo by Joshua Roberts/Bloomberg via Getty Images)

LUSAKA, Nov 24 (Reuters) – Zambia’s central bank raised interest rates by 50 basis points to 9.0% to help bring down stubbornly high inflation, with price rises only seen falling back within the bank’s target range in 2023, Governor Denny Kalyalya said on Wednesday.

Africa’s second-largest copper producer is in the throes of a debt crisis and is talking to the International Monetary Fund (IMF) about a lending programme.

Annual inflation was running at more than 21% in October, down from a peak above 24% in the middle of the year, but still well above the Bank of Zambia’s 6%-8% target.

Kalyalya told a news conference that Wednesday’s hike – the first since February – was aimed at bringing inflation back to target, but also took into account the need to continue supporting the economy and maintain financial stability.

He said inflation was still expected to average 15.0% next year and 9.3% in the first three quarters of 2023.

This week’s monetary policy meeting was Kalyalya’s first since his reappointment in September by President Hakainde Hichilema, who won a landslide election in August.

Hichilema’s predecessor Edgar Lungu fired Kalyalya in August 2020 without giving a reason, in a decision that spooked financial markets and prompted the IMF to call for central bank independence to be maintained.

Hichilema has been trying to restore investor confidence in Zambia after it defaulted on its sovereign debt a year ago, the first African country to do so during the COVID-19 pandemic.

As part of those efforts, Finance Minister Situmbeko Musokotwane last month pledged to slash the budget deficit and curb borrowing.

Zambia has more than $14 billion of external debt, including guaranteed loans to state-owned enterprises. Of that, $3 billion is Eurobonds, around $6 billion is owed to Chinese entities and the remaining $5 billion is a mix of commercial, multilateral and bilateral borrowing.

The central bank on Wednesday urged the government to implement fiscal reforms to complement an objective for low and stable inflation. It said economic growth this year was seen at 3.3%, with growth of 3.5% and 3.7% forecast in 2022 and 2023 respectively.

(Writing by Alexander Winning Editing by Catherine Evans and Mark Potter)

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