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Bank of Zambia Hikes interest rates to 15.5%; Full Statement

EconomyBank of Zambia Hikes interest rates to 15.5%; Full Statement
BANK of Zambia Governor Denny Kalyalya
BANK of Zambia Governor Denny Kalyalya

The Bank of Zambia has raised its policy rate to 15.5 percent from 12.5 percent in a move aimed at curbing rising inflation.

The Central Bank has also announced that it is lifting caps on lending rates.

BoZ Governor Denny Kalyalya told a quarterly media briefing reporters in Lusaka that the move to raise interest rate.

Dr Kalyalya said the Bank’s Policy Monitoring Committee is hopeful that the measures will help stem the rise in inflation.

He said keeping inflation expectations anchored in single digits is critical to maintaining the targeted macroeconomic objectives and in particular steering inflation towards the 2016 target.

The next Monetary Policy Committee Meeting will take place in February 2016.

Below is the full statement from Dr Kalyalya

The Monetary Policy Committee (MPC) held its meeting on 2nd November, 2015. The MPC considered developments in the global and domestic economies during the third quarter of 2015 and the outlook for the fourth quarter.

The MPC also decided on the monetary policy stance aimed at achieving the inflation objective and to support macroeconomic stability.


The Committee observed that the trend of weak growth in the global economy evident in the second quarter of 2015 was sustained during the third quarter of the year.
The International Monetary Fund (IMF), in its October 2015 World Economic Outlook (WEO) Update revised global growth downwards to 3.1% in 2015, 0.2 percentage points lower than the July WEO Update. Growth prospects remain uneven as output in advanced economies is expected to pick up slightly while activity in emerging markets and developing economies is projected to further slowdown, maintaining the deflationary pressure on commodity prices.

Over the third quarter, the average prices for copper and crude oil (Dubai) continued on a downward trend, falling to US$5,267.0 per metric tonne (mt) and US$49.9 per barrel from US$6,057.0 per mt and US$61.4 per barrel, respectively. As was noted in the August 2015 Monetary Policy Statement, the prospects for interest rate increase in the USA during the year continued to shift investor preferences in favour of US dollar denominated assets and further supported the strengthening of the US dollar. With this prospect on the horizon and the further slowdown in the Chinese economy, it is expected that the currencies of emerging markets and developing economies will remain under pressure as investors realign their portfolios.


The Zambian economy is currently facing significant challenges, with deterioration in the external environment similar to what was experienced during the global financial crisis of 2007/8. This has been compounded by domestic shocks related to the significant reduction in energy supply, fiscal pressures and adverse sentiments. The Committee is cognisant of the urgent need to diversify the economy that will require measures to support investment and growth in key sectors, such as agriculture, energy and manufacturing.

Monetary policy coupled with fiscal consolidation will be critical in anchoring macroeconomic stability. The fiscal deficit target for 2016 of 3.8% of gross domestic product (GDP) announced by the Hon. Minister of Finance in his 2016 Budget Address to Parliament represents a significant step towards anchoring macroeconomic stability.


At its previous Meeting in August 2015, the MPC kept the policy rate constant, having raised the Statutory Reserve Ratio in April 2015 to 18% from 14%. During the third quarter, liquidity conditions in the banking system rose reflecting increased Government spending and the net maturity of Government securities.
The Bank of Zambia, therefore, heightened its open market operations and kept the interbank rate just above the upper policy rate band of 14.5%.


The average overall annual consumer price index (CPI) inflation was 7.4% in the third quarter, 0.3 percentage points higher than the second quarter average of 7.1%. Inflation ended higher at 7.7% in September 2015, up from 7.1% in June 2015. Food price inflation edged higher to an average of 7.9% in the third quarter from 7.1% in the preceding quarter. However, quarterly average nonfood price inflation declined to 6.7% from 7.0%.

The increase in inflation was largely attributed to the pass-through from the sharp depreciation of the Kwacha exchange rate, increase in pump prices of refined petroleum products, revision of fees and fines, and the high production costs induced by increased power rationing, which led to the use of more expensive power from diesel generators.


Excess liquidity in the banking system increased substantially in the third quarter due to net Government spending as well as maturity of Government securities.

The high liquidity level raised reserve money by 8.7% to K13.5 billion at the end of September, depressed demand for overnight lending facility funds, and pushed the Treasury bill and Government bond composite yield rates lower by 1.6 and 0.3 percentage points to 21.7% and 23.5%, respectively.

While the value of funds raised through Government securities auctions jumped 20.3% to K4.0 billion, the outstanding balance of Treasury bills and bonds (at face value) fell 2.0% to K25.5 billion.

To contain the liquidity build up and attenuate inflationary pressures, the Bank of Zambia heightened its open market operations.


Broad money (including foreign currency deposits) increased by 26.3% to K46.6 billion in the third quarter largely due to the rise in deposits.
The expansion in deposits to K42.0 billion (and increase of 28.2%) reflected valuation effects owing to the sharp depreciation of the Kwacha against the US dollar in the third quarter.

Foreign currency deposits rose by 9.4% to about US$1.8 billion while Kwacha deposits marginally increased by 0.7% to K20.9 billion. Growth in domestic credit slowed down further in the third quarter to 2.7%, mainly due to a decline in lending to Government that fell by 52.9%. Lending to the private sector, however, rose by 22.0% in the third quarter from 1.2% in the second quarter. The average lending rate for commercial banks rose marginally to 20.8% at end-September from 20.4% at end-June.

Similarly, the average savings rate (ASR) for amounts above K100, and the average 30-day deposit rate for amounts exceeding K20, 000 marginally rose to 3.30% and 6.6% from 3.28% and 6.4% over the same period, respectively.

With the rise in inflation, real lending rates declined.

The average real lending rate decreased to 13.1% in September from 13.5% in June 2015.

Similarly, the real average 30-day deposit rate for amounts above K20,000 declined to -1.1% from -0.7% while the real ASR for amounts exceeding K100 declined to -4.4% from -3.8% in the second quarter.


The Kwacha came under severe pressure in the third quarter. Factors behind this were weak copper prices induced mainly by declining growth in China, the main buyer and consumer of copper; and adverse sentiments relating to power rationing, developments in the mining sector (prospects of job losses and scaling down of operations and reported loss of interest from investors), fiscal and current account deficits; and general performance of the economy.

Consequently, the Kwacha depreciated sharply by about 60% against the US dollar to end the quarter at K11.9800/USD. The Kwacha also weakened by an average of about 51% against the British pound sterling, euro and South African rand to end the quarter at K18.2334/GBP, K13.4435/Euro and K0.8679/ZAR, respectively.


The current account deficit widened further in the third quarter to US$401.0 million from US$305.9 million recorded the preceding quarter on account of higher import related service payments and the increase in income on equity payments by foreign owned enterprises.

The deficit on the balance of goods narrowed to US$14.0 million from US$91.0 million recorded in the preceding quarter due to a higher growth in goods exports relative to imports. Preliminary data show that an overall balance of payments surplus of US$716.0 million was recorded in the third quarter against a deficit of US$27.8 million in the second quarter mainly as result of the receipt of the third Eurobond proceeds.


The Hon. Minister of Finance in his 2016 Budget Address announced a reduction in the planned fiscal deficit to 3.8% of GDP from a projected 6.9% of GDP in 2015. Achieving this sharp fiscal consolidation will help to anchor macroeconomic stability, and ease domestic financing requirements and funding pressures.
This will therefore also support the conduct of monetary policy.


In arriving at the decision, the Committee took into account the inflationary developments in the third quarter and the inflation outturn of 14.3% in October, 2015.
The October outturn has pushed inflation into double digits, largely reflecting the sharp depreciation in the exchange rate as witnessed in recent months. Keeping inflation expectations anchored in single digits is critical to maintaining our targeted macroeconomic objectives and in particular steering inflation towards the 2016 target.

To this end, the MPC decided to further tighten monetary policy by raising the Policy Rate to 15.5% from 12.5%. In addition, to allow for better functioning of the credit market, the MPC decided to lift the caps on lending rates.

Both measures take effect immediately. The Bank of Zambia will continue to monitor domestic and external developments and stands ready to take appropriate monetary policy measures to support macroeconomic stability. The next MPC Meeting will take place in February 2016.


    • @Steve
      September data has been super ceded by 14.6% October inflation per CSO report.
      Let me try to help you. The increase in interest rate is normally a tool used to attract deposits into commercial bank savings while making it harder to borrow so that large sums of money can be syphoned from circulation. This helps reduce inflation because there will be less money in the market chasing goods. The hope is to reduce commodity prices since there will be fewer people able to buy thereby forcing sellers to reduce prices. The securities market works the same way, but the sad part could be that with current high inflation, by the time treasury securities mature, due to inflation, the holders will have lost the true value of their money. These policies do work theoretically, but with kaponyas…

    • Conted
      These policies do work theoretically, but with kaponyas in power, Kalyalya is kicking against the pricks. Good luck Zambia.

    • the MPC decided to lift the caps on lending rates.

      The above statement implies banks are back with full force on interest rates and it will be difficult again for individuals to borrow for business ventures. Effectively the govt should forget about diversifying the economy is borrowing will be at high rates without capping the lending rates. PF pronouncements do not much with policy development to support their pronouncements. Now how will the SMEs grow if BoZ will be aggressive with reducing liquidity as the main stay of fighting inflationary pressure. Put simple business will be tight in Zambia with immediate effect.

  1. Why is our Governor making constant references to the Monetary Policy Committee for the decisions instead of himself? Of course I am aware he is advised by many structures or organs!

    The BUCK stops at him and he should have been saying I, I , I have decided …

    • I agree with those that say high interest rates will ultimately hurt an already under-performing economy.
      We should be making more resources available for small businesses to thrive and boost employment …

  2. I wish we could stop applying economic theories of the developed western nations to our third-world country. Inasmuch as raising the interest rate can be a tool to curb rising inflation, shouldn’t we look at other factors driving this high inflation?

    I always thought you raise interest rates to slow down economic activity, and ultimately inflation. But when there is high unemployment in an already slow economy, what are we trying to achieve by raising interest rates? Is the CPI high because of too much money in circulation or is it due to the price hikes in basic commodities thanks to the “ni dollar” factor?

  3. As usual, knee jerk reaction instead of being proactive.One wonders whether we have people who can think outside the box instead of these nincompoops who always appear on the scene when things are bad. Now that inflation is 14.3% the best is to increase lending rates by 3%? High prices with little money is seculation is a recipe for disaster, we have said that policy inconsistencies leads to speculation and lack of confidence by investors in an economy.
    Honestly are these the best brains we have in Zambia? We blame everything else on something else instead of taking responsibility.In the developed world you simply resign and let others with solutions take over. Atase!!!

  4. PF you have truly failed the Zambian people, where are the supporters of borrowing in the morning and evening for every difficult we have had. With the Euro-bond (salivary) pressure and internal increased interest rates, how will the poor survive. PF you were given free advise to avoid the private driven loans or kaloba and you argued that you will borrow your way out of poverty. The experiment truly going wrong, now our children will be sitting for one exam for 48hours.

  5. Denny, these PF fellows are mangling your name.

    You are the worst performing Governor in the history of Zambia.


  6. Real is It =15.5
    Inflation =14.3%
    Nominal is It = 29.8% or

    So what is the thinking look at it from the quantity theory of money and see the desired inflation level in Dr Comments and see M.V=P.Q in the deflationary and inflationary sense and see the desired velocity curve for current What should be the primary tools to engage at a nominal rate of 29.8% and inflation rate of 14.3 % You will need to see the stated inflation rate for BOZ and see the direction of rates to reconcile the miss aligned to align properly look at the case of economies near 0 or negative inflation and learn positives in them even the…

  7. situation of the Koreans and see as XI pegs his economic growth at 6.5% try to see further and get the outlook in Zambia Inflation and rates resonating to the ground as seen in the M.V=P.Q simplified for instance South Korea’s headline inflation stayed at a zero percent for 11 straight months though inflation advanced in October from the previous month We should be desiring to be somewhere there and see the numbers for South Korea though not perfectly a making sense

  8. Good decision by BOZ but we hope to see a down ward trend thereafter to 0 or near 0 from that targeted in the short to near term as healthy indicator of correction of the economy It should not be that the rates have reached and came to stay

  9. Inflation is very high, but when u hv thousands of civil servants who are being over paid un yet they dnt produce, (nt to mention the politicians) thts money nt matchin production being thrown into the economy…. Nd even if the banks were to lend,… The business enviroment is at its worst ever (amongst other things) . Meaning pepo getting all the loans to create businesses are failing, which adds more money to the economy with no produce.

  10. Should have used the money they borrowed to diversify, instead they used it to make stupid roads to impress voters,….WILL SEE WHO WILL BE IMPRESSED…its like its like borrowing money to buy shoes.(yes shoes are important but other things are more important and more fundamental) like creating more high standard technical schools and equipment to exploit our strengths which are agriculture, forestry and labor etc

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