The Monetary Policy Rate has been maintained at 9.0%. . BoZ
This decision was arrived at by the Monetary Policy Committee at its Meeting held on August 15 – 16, 2022.
The Committee considered the sharp deceleration in inflation in the second quarter and a further projected decline into the 6-8% target range during the first quarter of 2024.
Sustained implementation of fiscal consolidation and structural reform measures, supported by the Extended Credit Facility from the International Monetary Fund, are among the key factors expected to contribute to lower inflation.
The Committee, however, noted upside risks to the inflation outlook that include persistently elevated energy prices, higher than expected maize prices, adverse weather conditions, tight global financial conditions, and weak demand as well as supply chain disruptions that could stem from pandemic containment measures.
Inflation declined for the third consecutive quarter to an average of 10.5% from 14.1% in the previous quarter.
Dissipation of base effects to prices of chicken and charcoal, appreciation of the Kwacha against the US$ and improved supply of vegetables accounted for the decline.
In June, domestic credit growth slowed to 6.8%, year-on-year, compared to 11.5% in March.
This was largely attributed to the reduction in lending to Government and contraction in private sector credit.
Gross international reserves marginally increased to US$3.0 billion (3.7 months of import cover; US9.8 billion of imports) at end-June, 2022 from US$2.9 billion (3.6 months import cover; US$9.4 billion of imports) at end-March. Over the forecast horizon, inflation is projected to decline to averages of 11.4% and 8.4% in 2022 and 2023, respectively, from the outturn of 22.1% in 2021. In the first half of 2024, inflation is expected to average 7.0%.
During the quarter under review, the Kwacha appreciated by 3.4% against the US Dollar to an average of K17.15/$. The Kwacha’s strength arose mainly from increased supply of foreign exchange.
Positive market sentiments arising from stronger prospects of securing an IMF Extended Credit Facility also contributed to the observed appreciation of the Kwacha.
Total supply of foreign exchange to the market during the quarter was US$2,128.3 million out of which the Bank of Zambia received US$494.0 million (23.2%) through mining taxes. In order to manage periodic exchange rate volatility in the face of increased prices of petroleum products and fertiliser following the Russia-Ukraine conflict, the Bank provided US$424.0 million back to commercial banks.
Decisions on the Policy Rate will continue to be guided by inflation forecasts, outcomes, and identified risks, including those associated with financial stability. The next Monetary Policy Committee Meeting is scheduled for November 21 and 22, 2022.
BOZ