Zambia’s central bank reduced its key lending rate for the first time in five years on Wednesday, signalling a response to ongoing declines in inflation and expectations of a potential economic slowdown.

The Bank of Zambia announced a 25-basis point reduction in its Monetary Policy Rate, bringing it down to 14.25%.

This move marks a shift from the bank’s recent stance, as it had kept the policy rate steady during meetings in May and August of this year. The previous rate cut occurred back in August 2020.

By lowering the rate now, the central bank appears to be aiming to stimulate economic activity while maintaining vigilance over price stability amid changing economic conditions.

Inflation in Zambia has remained above the Bank of Zambia’s target range of 6%–8% since 2019, as the Southern African copper-producing nation grappled with a prolonged debt crisis, Reuters news agency reports.

However, recent data indicate a steady improvement in price stability, with inflation declining for six consecutive months and reaching 11.9% in October.

“Projections indicate a faster deceleration towards the lower bound of the ... target band over the forecast horizon,” the central bank said during a presentation.

“The risks to the inflation outlook are still assessed to be supportive of lower inflation,” it went on to add, pointing to optimistic weather forecasts for the current agricultural season, stronger external economic conditions, and increased revenues from copper exports.

After years of unsustainable borrowing, Zambia defaulted on its external debt in November 2020 but managed to reach a restructuring agreement with its main creditors last year.