The Bank of Zambia (BOZ) is expected to hike interest rates by 25-50 basis points at its next monetary policy committee meeting on May 15, 2023. This is according to a poll of 15 economists conducted by The Kwacha Arbitrageur.
The poll results show that 75% of economists expect the BOZ to raise rates, while 25% expect no change. The main reason cited for the expected rate hike is the need to tame rising inflation. Zambia’s inflation rate has been on the rise in recent months, reaching 11.1% in April 2023. This is above the BOZ’s target range of 6-8%.
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The week beginning May 14,2023 marks the sophomore rate decision week in Africas red metal hotspot, Zambia. The Bank of Zambia will commence two delay deliberations into May 15 after which the announcement will be made. Governor Denny Kalyalya is faced with a plethora of risks dithering on uncertainty posed by delated debt restructure induced market fatigue and rising inflation from a weakening Kwacha. Kalyalya hiked rates 25 basis points in the first monetary policy committee of the year, the first time in four quarters to 9.25% while having tightened the cash reserve ratio by 2.5% to 11.5% for both local and foreign currency. This was the first cash reserve ratio tightening since December 2019.
The monetary head will likely reflect on the inherent currency risks with reference to a postmortem of the recent 122 day losing streak that saw the copper currency slide to the 20’s. The Kwacha levitated on rekindled hopes of debt restructure after China eased its stance on allowing for exemption of multilateral development banks from sharing in on haircut losses which addressed one of the biggest hurdles in the creditors discussions.
The currency volatility however has precipitated cost push pressures that sent Zambia into manufacturing pulse contraction in March. (46.9) and April (48.6) below the 50 benchmark. The interest rate demand curve has remained elevated with delayed climb down as most had expected due to uncertainty. Liquidity and price pressures continue to persistently theme the purchasing managers index according to Markit Economics survey a homogenous observation compared to its peers.
Zambian authorities passed pension legislation allowing for 20% cash in on retirement savings which kept commercial banks away from the fixed income market evidenced by the deep under subscription in the April debt sale.
Despite the upside risks, copper Zambia’s mainstay trades fairly healthy on the London Metal Exchange supported by a strong decarbonization drive globally and a forecasted deficit from projected supply constraints.
The Kwacha Arbitrageur
