Zambia inflation nears two-year high amid faltering currency

Daba Finance/Zambia inflation nears two-year high

AFRICAN BUSINESS AND ECONOMYFebruary 4, 2024 at 2:08 PM UTC

TLDR

Zambia's annual inflation rate reaches almost two-year high at 13.2% in January.
Monthly inflation accelerates to 2.1%, the fastest pace in a year.
The kwacha's depreciation against the dollar continues to be a major concern for policymakers.

Zambia's annual inflation rate has surged to an almost two-year high, driven by the continued depreciation of its currency, intensifying the pressure on monetary policymakers who are set to convene next month.

The consumer price index climbed to 13.2% in January, up from 13.1% the previous month, as disclosed by Statistician-General Mulenga Musepa in Lusaka last week. Additionally, monthly inflation accelerated to 2.1%, marking the swiftest pace in a year.

The kwacha has experienced a roughly 34% decline against the dollar since July, establishing itself as one of the worst-performing currencies globally this year. Despite implementing various policy measures to curb its depreciation, the kwacha's struggles persist, compelling policymakers to consider decisive actions in their upcoming meeting to address the challenging economic landscape.

Key Takeaways

In an attempt to address its currency challenges, Zambia has implemented various measures, including a new regulation effective January 1. This regulation mandates exporters to have accounts domiciled in Zambia to receive payment for their exports. Additionally, the country raised interest rates by 200 basis points in the previous year, bringing them to 11%, and has increased reserve-ratio requirements for lenders multiple times. The depreciation of the currency is exacerbated by reduced copper production, the primary foreign exchange earner for the southern African nation, and declining metal prices. Complicating matters is a creditor standoff, impeding Zambia's efforts to restructure its debt as the first pandemic-era sovereign defaulter on the continent. With persistent inflation and ongoing currency weakness, there is speculation that the Bank of Zambia's monetary policy committee may opt to raise the benchmark rate for the fifth consecutive time in its decision scheduled for February 14, 2024.

Zambia

Currency

Kwacha

Inflation

Interest Rates