Zambia Raises Key Rate as Inflation Outlook Worsens

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Zambia’s central bank announced its decision to raise its key lending rate for the second consecutive time in response to soaring inflation, according to a statement released Wednesday.

Governor Denny Kalyalya revealed that the bank had increased the interest rate by 150 basis points, bringing it to 12.5% from the previous 11%, as part of efforts to address inflationary pressures. In January, inflation surged to 13.2% from 13.1% in December, driven by rising prices of corn and fuel, alongside the depreciation of the local currency against the U.S. dollar.

“The decision to raise the rate aims to steer inflation towards the target band and anchor inflation expectations,” Kalyalya stated. “Future interest rate determinations will be influenced by inflation outcomes, forecasts, and identified risks.”

The rate hike exceeded earlier forecasts, with Oxford Africa Economics anticipating a 100 basis-point increase. Zambia confronts its highest inflation rate in nearly a year, compounded by a 30% depreciation of the local currency against the dollar since the previous year, resulting in elevated prices across the mineral-rich nation.

Amid challenges related to debt restructuring, Zambia marked Africa’s inaugural pandemic-era sovereign defaulter in 2020. However, analysts foresee a potential economic boost following the recent discovery of a substantial copper deposit by U.S. start-up KoBold Metals.

The discovery, announced in early February, is anticipated to bolster Zambia’s economic outlook. Government and industry officials anticipate that the deposit in the Copperbelt province could pave the way for the establishment of a 500,000 metric-ton-a-year mine, potentially reshaping the dynamics of metal supply crucial for the global energy transition.