Zambia hikes rates to 7-year high over currency slump
TLDR
- Zambia's central bank raises key interest rate to 13.5% to combat inflation and support kwacha amid severe drought.
- Governor Kalyalya emphasizes need to address inflation to maintain macroeconomic stability and sustained growth.
- Factors driving inflation include kwacha depreciation, increasing grain, vegetable, and energy prices.
Zambia’s central bank raised its key interest rate to the highest level since 2017 to curb inflation and support the kwacha amid the country's worst drought in four decades. The monetary policy committee increased the rate to 13.5% from 12.5%, Governor Denny Kalyalya said in Lusaka.
Kalyalya explained that the decision was driven by a "persistent rise in inflation expectations," which, if not addressed, could undermine macroeconomic stability and hinder sustained growth. “Inflation is a thief, it erodes your wealth. We must address inflation,” he stated.
Key factors contributing to inflation include the continuous depreciation of the kwacha against major currencies and rising prices of grain, vegetables, and energy.
Points clés à retenir
Last week, the kwacha fell to a record low against the dollar before recovering some losses. The currency has been pressured by delays in debt-restructuring talks and rising demand for foreign currency to pay for increased food and electricity imports due to drought-induced shortfalls. Zambia, which relies on hydropower for 85% of its electricity supply, has faced significant challenges due to low water levels. The ongoing dry spell is expected to continue driving inflation. In April, inflation accelerated at the fastest pace in 26 months. It is projected to average 13.7% this year, up from a previous forecast of 12.5%. This persistent inflationary pressure has further complicated the economic landscape, prompting the central bank's recent interest rate hike to stabilize the currency and control price growth.
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