Zambia Hikes Interest Rate Again to Curb Inflation, Support Currency

AFRICAN BUSINESS AND ECONOMYFebruary 12, 2025 at 11:01 AM UTC

TLDR

Zambia’s central bank raised its key interest rate by 50 basis points to 14.5%
That's the highest rate in over eight years, to combat rising inflation and stabilize the kwacha
Annual inflation reached 16.7% in December, up from 16.5% in November, marking its highest level since November 2021

Zambia’s central bank raised its key interest rate by 50 basis points to 14.5%, the highest level in over eight years, to combat rising inflation and stabilize the kwacha. The decision follows an 18-month surge in inflation, driven by a severe El Niño-induced drought and currency depreciation.

Annual inflation reached 16.7% in December, up from 16.5% in November, marking its highest level since November 2021. Food prices rose 18.6%, while non-food inflation increased to 14.2%.

The kwacha weakened 4.8% against the dollar in the last quarter, as Zambia increased food and electricity imports to offset drought-related shortfalls. Hydropower supplies 85% of the country’s electricity, making it vulnerable to climate shocks.

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Key Takeaways

The Bank of Zambia last raised rates to 14% in November, signaling its commitment to controlling inflation. Finance Minister Situmbeko Musokotwane said further monetary tightening remains an option if price pressures persist. Zambia’s GDP grew 2.5% in Q3, up from 1.9% in Q2, but economic growth remains fragile as inflation erodes purchasing power. The government is balancing fiscal consolidation with inflation control to stabilize the economy.

Zambia

Economy

Inflation

Interest Rate

Central Bank

Monetary Policy