Zambia’s central bank said on Monday (Aug 5) its Monetary Policy Committee (MPC) decided to leave the policy rate unchanged at 12% as its tightening measures during the second quarter have helped restore relative stability in the foreign exchange market and in the financial sector in general. However, it warned that inflationary pressures remain.
The Bank of Zambia raised its benchmark rate by a total of 225bps at its meetings in March and April, as the annual inflation rate rose from 7.1% at end-2013 to 7.7% in March 2014 due to higher food prices. Inflation accelerated further during Q2, reaching 8% in July, further away from the central bank’s end-year inflation target of 6.5%. However, annual food inflation fell from 7.8% in June to 6.9% in July, whilst non-food inflation rose from 8.0% in June to 9.2% in July largely due to higher electricity tariffs.
The bank said that the upside risks to inflation in the current quarter include second round effects of the upward revision in electricity tariffs, lagged effects of the depreciation of the local kwacha currency in Q2, and the 7.7% hike in the Food Reserve Agency’s (FRA) maize floor price. These inflationary pressures could be counterbalanced by a seasonal decline in food prices, given the record maize harvest, as well as the stabilization of the kwacha.
The central bank noted that available indicators of economic activity suggest that the government is on track to meet its 6.5% GDP growth target for 2014.
The next MPC meeting is scheduled for November 21.
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