The Bank of Zambia (BoZ) has reduced the Monetary Policy Rate (MPR) from 14.50 percent to 14.25 percent, a move aimed at supporting economic recovery amid signs of easing inflation and strengthening the Kwacha.
The Central Bank’s Monetary Policy Committee cited a more favourable inflation outlook, improved foreign reserve levels and moderate economic growth as key factors behind the decision.
Reacting to the development, the Centre for Trade Policy and Development (CTPD) described the reduction as a positive and measured signal of confidence in Zambia’s macroeconomic environment.
Executive Director for CTPD, Isaac Mwaipopo, said the slight easing of monetary conditions is expected to provide relief to firms grappling with high borrowing costs, particularly in manufacturing, agro-processing and other productive sectors that have been under pressure due to tight credit.
Mr Mwaipopo however cautioned that the move comes with certain policy risks that need to be carefully managed.
“While inflation has moderated, price pressures remain uneven especially in food, transport and energy. A premature policy loosening could complicate efforts to anchor inflation expectations if shocks re-emerge,” he said.
He also expressed concern that lower interest rates could slow down the recent appreciation of the Kwacha if external inflows decline, adding that structural constraints in the banking sector may prevent commercial banks from fully transmitting the policy rate reduction to borrowers.
Mr Mwaipopo said to ensure the intended benefits reach the real economy, CTPD has urged the Bank of Zambia and Government to complement the policy rate cut with targeted interventions.
These include strengthening credit guarantee schemes, accelerating the disbursement of Constituency Development Fund (CDF) resources toward productive ventures, and tackling supply side challenges that continue to drive up prices.
“Monetary easing alone is not enough, it must be supported by measures that enhance access to affordable credit and address the root causes of inflation,” he said.
The CTPD has since reaffirmed its commitment to providing evidence based analysis to support sound economic management and promote sustainable growth.
