Bank of Zambia hikes key lending rate

25 Nov 2021

The central bank of Zambia hiked its key lending rate by 50 basis points to 9% on Wednesday on concerns of inflationary pressures as the country seeks to boost sluggish coronavirus-related growth disruption.

Governor of the central bank, Denny Kalyalya said Zambia’s inflation rate remains high despite showing indications of receding over the past few months, thereby requiring policy tightening to ease the pressure, Market Watch reports.

"[The] inflation rate remains elevated at 22%, our decision to raise the rate was to begin to steer inflation to the targeted single digit by 2022," Mr. Kalyalya stated.

Although Zambia’s economy declined 2% in 2020, and was Africa’s first sovereign defaulter during the pandemic, the central bank governor said the economy has begun to rally, fuelled by a recovery in the mining and agriculture sectors. The Bank of Zambia predicts the economy will likely grow by a minimum of 3.3% this year, despite ongoing downside risks such as coronavirus vaccine rates and rising food prices.

In October, the finance minister told parliament Zambia’s external debt is 12% higher than previously thought, at $14.48 billion, piling further pressure on the country.

The majority of analysts were surprised at the rate decision, as they forecast the rate tightening cycle to get underway in 2022 as economic growth accelerated.

Moreover, Zambia’s economic output fell 4% in the first half of this year, as miners grappled with Covid-related interruptions.

Over the last 10 years, Zambia borrowed heavily – predominantly from Chinese lenders – for infrastructure projects such as roads and railways. Yet the debts also increased fiscal deficits, hiked inflation and food prices, fuelling social unrest.