Economists fault reliance on higher interest rates for management of rising inflation in Zambia

The Economics Association of Zambia (EAZ) has urged a broader approach to stabilising the Zambian economy that avoids heavily burdening borrowers, advocating for open market operations (OMO) and other liquidity management tools.

EAZ Vice President, Mbanji Milambo,said that allowing market forces to play a more significant role in balancing demand and supply could help the Monetary Policy Committee (MPC) manage inflation without overly constraining economic activity.

In a statement issued Friday, Milambo responded to the Bank of Zambia’s decision to raise the Monetary Policy Rate (MPR) by 50 basis points to 14 percent. While acknowledging the intent to curb inflation, he highlighted the need for complementary fiscal policies and structural reforms in agriculture, energy, and manufacturing to create a resilient and sustainable economy.

“To achieve the intended inflation target sustainably, monetary policy adjustments should be supported by fiscal policies that strengthen productive capacity,” Milambo said.

He noted that targeted measures to enhance local production in essential sectors like agriculture and energy could address cost-push inflation, reduce reliance on imports, and ease pressure on the Kwacha, ultimately stabilising the currency.

The EAZ also warned that relying solely on demand-reducing measures, such as higher interest rates, risks dampening economic growth by restricting access to credit for businesses and households, stifling production and investment at a critical time.

“A balanced strategy that harmonizes demand- and supply-side interventions would foster a more robust economic recovery, sustainably stabilise inflation, and enhance Zambia’s long-term economic resilience,” Milambo stated.

The association called on policymakers to consider an integrated approach that combines monetary and fiscal measures to achieve stable inflation and economic growth.

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