Inflation Expected To Remain High But Will Decline As Food Supply Improves – BoZ.

The Bank of Zambia’s Monetary Policy Committee has maintained the policy rate at 11.50 per cent.

The Bank also expects the country’s inflation to remain high over an earlier part of the forecast period and later decline as food supply improves.

Bank of Zambia governor Dr. Denny Kalyalya made the announcement at a media briefing in Lusaka today, saying much of the inflation has been driven by rising food prices.

“The committee recognised that economic activity has continued to be weak and liquidity challenges have persisted. These continue to pose risks to financial stability. The committee reiterates the need for effective and sustained implementation of fiscal adjustment and structural measures to address elevated debt levels and debt service, the continued accumulation of domestic arrears and liquidity constraints in order to restore macroeconomic stability and promote robust and just economic growth,” he said.

The governor said decisions on the policy rate will continue to be guided by inflation forecasts, outcomes, identified risks, as well as effective and sustained implementation of fiscal consolidation  measures.

He further predicted a continued rise in lending interest rates as liquidity conditions tightened, largely reflecting government financing requirements which kept yield rates high.

“In addition, the upward adjustments in both the policy rate in November 2019 and the statutory reserve ratio in December 2019, in response to high exchange rate volatility and hence inflationary pressures contributed to the rise in lending rates,” he said.

On the foreign exchange market, he said subdued supply of foreign exchange amidst escalating demand for the importation of petroleum products, electricity and agricultural inputs were behind the depreciation of the kwacha.

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