Cost of borrowing to rise, as Central Bank targets to contain escalating inflation

The financial sector is expected to increase interest rates following the upward adjustment of the Monetary Policy Rate to 10 percent by the Bank of Zambia (BoZ)

The Central Bank Governor, Denny Kalyalya, on Wednesday announced at a media briefing in Lusaka the increase in monetary policy rate by 50 basis points from the previous 9.5 percent.

According to Kalyalya, raising the monetary policy rate by the Central Bank had been driven by the continued escalation of the inflation rate which currently stood at 10.3 percent.

This decision means that financial institutions would also have to adjust upwards all loans linked to the Monetary Policy Rate which have been accessed by some consumers.

In the second quarter of 2023, interest rates rose broadly in line with the upward adjustment in the Monetary Policy Rate in May 2023.

“After declining for six consecutive quarters, inflation rose in the second quarter of 2023 to an average of 9.9 percent from 9.6 percent in the first quarter of 2023, moving away from the six to eight percent target band,” Kalyalya said.

He was worried that if inflation was left unchecked, it would undermine the gains already made in restoring macroeconomic stability.

He, therefore, explained that the decision was informed by the movement of current and projected inflation away from the six to eight percent target band and the need to contain inflation expectations.

Kalyalya said the Monetary Policy Committee also considered financial sector stability and sluggish growth in its decision.

“Inflationary pressures are expected to persist over the forecast horizon with inflation projected to remain above the 6-8 percent target band.

“In 2023, inflation is projected to average 10.2 percent, marginally lower than the 10.3 percent in the May forecast,” he said.

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