Zambia’s central bank has maintained its benchmark interest rate at 9% for the second time in a row. This was announced at a press briefing in Lusaka by Governor Dr. Denny Kalyalya. The monetary policy committee in its penultimate session of 2022 commended two day deliberations on Monday August 15. Supporting the decision, Dr. Kalyalya cited single single digit inflation a trajectory attained in the May headlines levels.
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However the Bank of Zambia remains weary of rising inflationary pressures from crude price volatilities as a consequence of supply and demand fundamentals on the international market.
Better manufacturing pulse as PMIs expand
Private sector pulse for July rebounded to positive territory at 50.5 in purchasing managers index after two months of contraction. Weighed by petroleum price pressures Zambia is beginning to see risk appetite and business confidence seeking back into the markets supporting a rise in demand but with liquidity pressures. Input inflation is easing supported by a more favorable exchange rate that has cushioned manufacturing costs in the quarter.
Bullish FX rate making Zambias bonds attractive
The copper currency, the Kwacha continued to rally stronger supported by condolence boost ahead of an IMF bailout deal which markets remain optimistic will be sealed by September. Increased optimism is expected to ease government security yields as Kwacha assets record increased interests from offshores in the wake of a chaotic risk environment exacerbated by an autopsy of the Russo – Ukraine war, elevated inflation environment triggering aggressive rate hikes.
Chaotic global environment still breeding uncertainty Global financial conditions remain tightened as recessionary fears continue to weigh. The bellwether of global growth pulse copper continues to trade below its highs on the London Metal Exchange. With softer demand a new problem after healing supply chains commodity price concerns remain another driver of risk. The recent aggressive rate hikes by the US Fed have started to yield fruit as inflation has started to ebb while the same is expected for other western nations such as the United Kingdom.
Silver-linings in a turbulent global environment
However the current state of the global landscape has silver linings for Zambia in the area of petroleum as softer demand could lower oil prices that could ease fuel prices while the grain dislocation keeping soft commodity prices high poses export opportunities for agribusiness and above all underwater treasury yields have kept Kwacha government paper attractive. Zambias government bond index year to date is 9.5% in Kwacha and 13.3% in dollar terms stronger close to all times highs.
The Kwacha Arbitrageur
