BOZ hikes MPR to manage rising inflationary pressures

By Staff Reporter

The Bank of Zambia (BOZ) has hiked the Monetary Policy Rate (MPR) in a bid to contain the rising inflationary pressures, which look to set breach the targeted six to eight percent range.

In a statement, BOZ governor Dr Denny Kalyalya said the Central Bank decided to increase the MPR to 10.25 percent from 9.75 percent, representing 50 basis points, for the first time in over a year.

Dr Kalyalya said that the statutory reserve ratio was left unchanged at five percent.

He explained that the Central Bank’s monetary policy committee had no choice but to increase the MPR due to rising inflationary pressures, which had been exacerbated by the kwacha’s sharp depreciation against major currency convertibles.

“The kwacha has come under pressure. Between April 1 and May 17, 2019, the kwacha depreciated by 14.9% to around K14.00 per US dollar. Accounting for this was elevated demand related to petroleum imports, reduced supply of foreign exchange, and negative market sentiments,” said Dr Kalyalya, emphasising the need to make some adjustments.

He added that some key factors were taken into account arriving at a decision that there has been a build-up in inflationary pressures in the economy, with inflation now being projected to remain above the power bound, with eight percent.

“We project that over the coming eight quarters, inflation will be above that bound. This has come about because of heightened volatility in the exchange rate in the kwacha against major foreign currencies, with the potential to further increase inflation if no other action is taken. We see that there has been slow progress towards fiscal consolidation as reflected in the rising domestic arrears,” he said.

Dr Kalyalya has further noted that BOZ took cognizance of the anticipated slowdown in growth, weak growth in credit to the private sector and tight financial conditions induced by Zambia’s huge external debt service.