By BUUMBA CHIMBULU
THE Bank of Zambia (BoZ) has continued to implement actions to restrict money circulation in the market with its latest measure being the increase in the benchmark of lending money by 100 percent to 11 percent.
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This is meant to curb the elevated inflation rate whose pressures are expected to intensify over the forecast horizon covering the fourth quarter of 2023.
The central bank is concerned that inflation, currently at 12.6 percent, could be hard to bring down if no stringent measures are put in place now.
Inflation is projected to average 10.9 percent, 11.4 percent, and 9.6 percent in 2023, 2024, and 2025, respectively.
BoZ Governor, Denny Kalyalya, cited higher food (mostly maize and its products) and retail fuel prices as well as the depreciation of the Kwacha against the United States dollar as being the major drivers of these inflationary pressures.
Dr Kalyalya, at the Monetary Policy Rate announcement for the fourth quarter of 2023 yesterday in Lusaka, announced the hiking of the policy rate by 100 basis points to 11 percent from the previous 10.0 percent announce during the third quarter of 2023.
This is the third time the central bank is increasing the monetary policy rate this year.
“If left unchecked, inflation could become anchored above the target band, thereby making it harder to achieve macroeconomic stability. Therefore, in this environment, a much stronger policy response is warranted to anchor inflation expectations and bring inflation back into the six to eight percent target band.
“It is painful but necessary evil otherwise we will end up eroding even the benefits we have gained if we leave it like this,” Dr Kalyalya said.
He also talked about the depreciation of the Kwacha which depreciated by 5.8 percent against the United States dollar in the third quarter of 2023 with its pressures persisting in the fourth quarter.
Between end-September and November 21, 2023, the Kwacha depreciated by 10.9 percent to K23.30 per United States dollar.
Dr Kalyalya attributed the depreciation to sustained excess demand for foreign exchange, mostly by the energy and manufacturing sectors, amid low supply, especially from the mining sector, and the strengthening of the United States dollar on the international market.
“To moderate volatility and help meet critical import requirements, the bank had to sell a large proportion of the foreign exchange from mining taxes paid directly into the Bank in United States dollars.
“In the third quarter, US$173.0 million was sold against the US$256.4 million received as mining taxes,” he explained.
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