Zambia Slashes Interest Rate to 13.25% as Inflation Cools Amid Global Uncertainty
Zambia Continues Easing Cycle with Third Rate Cut
Zambia’s central bank has lowered its benchmark interest rate to 13.25% from 13.5%, marking the third consecutive rate cut as inflationary pressures continue to ease. The decision signals growing confidence in the country’s economic stability, even as global uncertainties persist.
The move places Zambia among a select group of economies gradually loosening monetary policy while many others remain cautious due to persistent inflation risks.
Inflation Relief and Economic Stability Drive Decision
According to the Bank of Zambia, the decision was driven by improving inflation trends, a more stable exchange rate, and expectations of a strong agricultural season.
Governor Denny Kalyalya said policymakers were encouraged by favourable macroeconomic indicators, especially projections of a strong corn harvest, which is expected to support food supply and ease price pressures further.
Global Risks Still Influence Policy Direction
Despite the easing cycle, the central bank warned that global uncertainty—particularly tensions linked to the Middle East conflict—still pose risks to Zambia’s economic outlook.
Kalyalya noted that while domestic conditions are improving, policymakers remain cautious due to possible disruptions in global commodity markets, especially fuel and food prices.
Inflation Outlook Improves, Reserves Strengthen
The central bank projected inflation to average 6.8% in 2026, slightly lower than previous estimates, reflecting expectations of continued price stability.
Zambia’s foreign exchange reserves also improved, rising to $6.2 billion, providing about 5.2 months of import cover, up from $5.5 billion in the previous quarter. Inflation has remained within the 6%–8% target range since February, strengthening confidence in the monetary outlook.
Economic Backdrop: Global Conflict, IMF Talks, and Fiscal Support
Zambia’s policy shift comes as global commodity markets remain volatile due to tensions in the Middle East, which have pushed up food, fuel, and fertilizer prices worldwide.
To cushion domestic pressures, the government has suspended fuel taxes until June and removed VAT on fuel products. Meanwhile, Zambia continues negotiations with the IMF for a new support programme, expected after the country’s August elections.
Economists say the latest cut reflects cautious optimism that inflation is easing enough to support growth—without fully removing global risk concerns from the equation.
source: Nairametrics