ECONOMIC ASSOCIATION OF ZAMBIA (EAZ) POSITION ON THE BANK OF ZAMBIA MPC DECISION
Following the Bank of Zambia’s Monetary Policy Committee (MPC) meeting held from 21st to 22nd May 2025, the Economic Association of Zambia (EAZ) hereby provides a structured policy position and analysis of the monetary policy stance adopted, in line with our mandate to support evidence-based economic discourse and promote macroeconomic stability.
1. Monetary Policy Rate Decision – Status Quo Maintained
The decision by the Bank of Zambia to maintain the Monetary Policy Rate (MPR) at 14.5 percent reflects a cautious but confident approach to monetary policy management. This stance signals the Central Bank’s intent to sustain a tight but non-restrictive policy posture, balancing the recent improvement in inflation dynamics with prevailing macroeconomic risks. The slight reduction in annual inflation from 16.8 percent in February to 16.5 percent in April 2025, while modest, indicates early signs of disinflationary momentum. The decision not to adjust the policy rate further underscores the Bank’s confidence that existing monetary conditions remain adequate to support the current inflation trajectory.
By holding the policy rate steady, the Bank has provided a level of predictability for economic agents, thereby supporting business planning and reducing uncertainty in the credit market. This also allows the economy to absorb and adjust to the cumulative effects of previous tightening cycles without imposing additional constraints on private sector activity and investment.
2. Recognition of Positive Inflation Trends and Macroeconomic Developments
The EAZ acknowledges the Bank’s assessment of recent macroeconomic improvements, including:
• A deceleration in headline inflation,
• Food price moderation and a decline in non-food inflation components,
• Enhanced inflation expectations,
• An anticipated bumper maize harvest of 3.6 million metric tonnes, and
• A decline in international crude oil prices.
These developments collectively support the current monetary policy stance and point toward improving macroeconomic fundamentals. In particular, the expected agricultural output is likely to ease food inflation a major contributor to Zambia’s Consumer Price Index (CPI) while lower fuel prices are expected to ease production and transportation costs, thereby softening cost-push inflationary pressures. These factors strengthen the prospects for inflation to return within the Central Bank’s medium-term target range of 6–8 percent by 2027, as projected. The EAZ supports this outlook and encourages the continued monitoring of domestic supply conditions and global commodity price movements to inform timely policy responses.
3. Caution on Remaining Risks and Inflation
Pressures Despite the positive outlook, the EAZ emphasizes the importance of remaining vigilant given the persistence of several downside risks. These include:
• External supply chain disruptions due to geopolitical tensions and climate-induced shocks,
• Global economic uncertainty, particularly as advanced economies pursue divergent interest rate paths,
• Exchange rate volatility driven by Zambia’s external debt obligations and limited foreign exchange buffers.
These risks could disrupt the projected disinflation path, especially through imported inflation and input cost pressures. The depreciation of the Kwacha in preceding quarters remains a key driver of inflation in tradables, and as such, continued exchange rate management will be essential to preserving monetary policy effectiveness. In this regard, EAZ supports the Central Bank’s cautious approach and underscores the need for proactive risk assessment, particularly in relation to external balances, capital flows, and terms of trade developments.
4. Emphasis on Policy Coordination and Structural Reforms to ensure the sustainability of the positive inflation outlook and broader macroeconomic recovery, EAZ reiterates the critical importance of:
• Strong fiscal-monetary policy coordination,
• Stabilizing the exchange rate supported by improved balance of payment performance
and sustaining it in the medium to long term,
• Increased mining production to 1 million metric tonnes by December 2025 and improved revenue performance to at least 21% of gross domestic product,
• Sustained support for improved agricultural productivity and value addition,
• Resolving energy deficits in the short-run and improve energy management,
• Structural, regulatory, and institutional reforms to enhance economic resilience, inclusive growth, and macroeconomic stability.
Monetary policy, while crucial, cannot act in isolation. Expansionary fiscal actions without coordination could undermine the effectiveness of tight monetary conditions. Therefore, alignment in fiscal discipline, public sector reform, and debt management strategies will be key to maintaining macroeconomic stability.
The Association also emphasizes that improved agricultural performance not only supports food price stability but is vital for rural livelihoods, employment generation, and broader socio-
economic development. Moreover, long-term reforms focused on export diversification, improved industrial productivity, and private sector competitiveness will be essential in reducing Zambia’s exposure to external shocks.
5. EAZ’s Role in Economic Dialogue and Policy Support
As the country continues its post-debt restructuring recovery, EAZ remains committed to:
• Supporting evidence-based micro and macro-economic policies and their implementation,
• Promoting public understanding of key micro and macro-economic trends,
• Facilitating stakeholder dialogue on policy issues,
• Providing objective, evidence-based policy insights in support of Zambia’s sustainable economic transformation.
The Association’s engagement on the monetary policy stance is part of its broader mission to contribute to informed economic governance and foster a stable, and predictable policy
environment.
6. Conclusion
The Economic Association of Zambia supports the Bank of Zambia’s decision to maintain the MPR at 14.5% and recognizes the progress made in restoring price stability. At the same time, we caution against emerging downside risks and reiterate the need for coordinated policy actions and continued structural/institutional reforms.
EAZ reaffirms its role as a neutral, professional, and constructive stakeholder in the economic policy landscape and remains committed to fostering economic dialogue that supports inclusive
and sustainable growth.
Issued by:
DR. OSWALD MUNGULE
President, Economics Association of Zambia (EAZ)