At the conclusion of its Monetary Policy Committee (MPC) meeting on 23 August, the Bank of Zambia (BoZ) hiked the policy rate by 50bp, taking the Main Policy Rate (MPR) to 10.0 percent.
This was the third successive hike this year, from the 9.0 percent policy rate at the beginning of the year. We were only expecting a 25bp hike at this meeting. A key reason for the hike is that the Bank of Zambia expects inflation to remain outside its 6 percent-8 percent target range over the forecast period (through to August 2025). The BoZ cited elevated maize prices and tight global financial conditions as key drivers of its current inflation outlook and stated concerns about potentially higher global food and energy prices.
The committee noted that average commercial banks’ lending rates edged up slightly since the last meeting from 25.5 percent to 25.7 percent — a reflection of the tightened policy. Overall growth of credit extension to the private sector has reduced to 9.1 percent y/y relative to 12.1 percent in June last year. The committee noted the potential impact of the rate increase on private sector credit extension but stated that an increase was necessary for overall macroeconomic stability.
Specifically on GDP growth, the BoZ projects GDP growth to be lower in 2023 than the 4.7 percent recorded in 2022 due to a further contraction in the mining sector as well as the slowdown in the education and electricity sectors. However, the central bank expects growth to pick up over the medium term again, largely driven by mining sector activity. The MPC also reiterated that its policy decisions will be guided by both inflation outcomes and forecasts as well as identified risks, including those associated with financial stability and external debt restructuring.
Meanwhile, Vedanta Resources Ltd has committed to paying US$250 million owed to various suppliers and contractors as it resumes control of Konkola Copper Mines (KCM), according to Bloomberg. Vedanta has had a legal dispute with the Zambian government since 2019 when the government, at the time, put KCM under provisional liquidation. Vedanta has also committed to investing c.US$1bn in the mine to more than double output from the current 50,000MT annual production. The reporting suggests that both parties are close to finalising a much-needed deal to restore normal operations at KCM.
