Zambia Holds Policy Rate at 14.5% Amid Inflation Relief and Economic Momentum
In a move that signals cautious optimism, the Bank of Zambia (BoZ) has maintained the Monetary Policy Rate (MPR) at 14.5 percent. This decision followed the May 21–22 Monetary Policy Committee (MPC) meeting and was announced by Governor Dr. Denny Kalyalya during a media briefing at BoZ headquarters in Lusaka.
The central bank’s decision comes at a time when inflationary pressures are beginning to ease, although challenges remain. Headline inflation dropped slightly to 16.5% in April 2025 from 16.8% in February, mainly driven by a reduction in non-food inflation, which fell to 13.2%. However, food inflation crept up to 18.9% due to short-term supply concerns.
Despite the mixed inflation picture, the BoZ has revised its inflation forecast downwards. The central bank now expects average inflation to stand at 13.8% for the year, with a projected return to the 6–8% target band by the first quarter of 2027. This outlook is supported by lower global crude oil prices and a record maize harvest of 3.6 million metric tonnes.
The foreign exchange market has also shown signs of recovery. Although the Kwacha depreciated by 4.0% in the first quarter of 2025, this marked an improvement from the 4.5% depreciation recorded in the previous quarter. The currency has since appreciated by 3.3% in the second quarter, trading at K27.80 per US dollar as of May 22.
Supporting the foreign exchange market, the BoZ injected US$233.5 million to reduce volatility and meet import demands. This intervention helped stabilize the market, although underlying pressure from foreign currency demand remains a concern.
Mining sector foreign exchange inflows also increased by 5.8% to US$556.8 million in the first quarter, driven by stable copper prices and increased production. Significantly, US$281.1 million of this amount was remitted directly to the central bank as mineral tax payments, strengthening foreign exchange reserves.
Zambia’s gross international reserves rose to US$4.5 billion, providing 4.6 months of import cover. This marks a notable improvement in the country’s external position. Gold reserves also increased to US$233.6 million, with US$8.5 million in gold purchases recorded in the first quarter. However, the valuation remains vulnerable to global gold price volatility.
The domestic credit environment is also improving. Credit to the private sector grew by 15.3% year-on-year in March 2025, driven by increased lending to manufacturing, agriculture, and wholesale trade sectors. This is a positive sign for private sector recovery and business confidence.
The BoZ noted an uptick in economic activity during the first quarter of 2025. The recovery was supported by strong performance in the ICT sector and a resurgence in agriculture. The bumper maize harvest has not only contributed to inflation easing but also supported food security and rural incomes.
Despite the overall progress, the central bank remains cautious. Risks such as high foreign exchange demand, climate-related shocks, and global economic uncertainties could still disrupt the current trajectory. The MPC emphasized that policy decisions will continue to be data-driven.
Governor Kalyalya reaffirmed the BoZ’s commitment to achieving price and financial system stability. “While we see promising signs of recovery and disinflation, our stance will remain vigilant, guided by emerging data and risks,” he stated.
Stakeholders in the business and investment community have welcomed the decision, noting that it provides predictability while anchoring inflation expectations. However, they also stress the need for complementary fiscal reforms to support the monetary policy stance.
As Zambia continues its journey of economic rebuilding and debt restructuring, the central bank’s steady hand signals a commitment to long-term stability. The months ahead will be critical in translating these macro-level gains into inclusive and sustained growth.
Kumwesu Business Desk
May 23, 2025
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