Zambia Central Bank Reduces Key Rate to Lowest Since 2014

LUSAKA (Capital Markets in Africa) -Zambia’s central bank cut its benchmark lending rate for a third time this year as inflation remained below the government’s target.

The Bank of Zambia lowered the rate to 11 percent from 12.5 percent, Governor Denny Kalyalya told reporters Thursday in Lusaka, the capital. That’s the lowest level since February 2014.

The southern African nation’s consumer inflation rate is near the lowest since 2013, with this year’s record harvest of corn, which is used to make a local porridge, leading to lower food prices. A reduction in fuel costs this month could also ease inflationary pressure in the continent’s second-biggest copper producer, which has been struggling with ballooning budget deficits as metal prices fell and state spending rose.

Inflation will remain in the medium-term target range of 6 percent to 8 percent over the next two years, Kalyalya said.

The International Monetary Fund is still engaging with Zambia over a potential program, it said earlier this week. The nation was on course to reach a staff-level deal with the IMF for about $1.3 billion last month, Finance Minister Felix Mutati said at the time.

The inflation rate fell to 6.6 percent in July and has been below the government’s 9 percent target for the year since November. It peaked at 22.9 percent in February last year.

Higher agricultural output, a recovery in power generation and more mining production have improved growth prospects, with the bank raising its forecast for expansion in gross domestic product this year to 4.3 percent from 3.9 percent. It increased the estimate for next year to 5.1 percent from 4.6 percent.