In the Bank of Zambia’s sophomore rate decision meeting for 2022, the Monetary Policy Committee (MPC) kept rates unchanged at 9.0%. This was announced at a press briefing at the central bank hall in Lusaka by Governor Dr. Denny Kalyalya on May 18. This is the second time the committee is maintaining the ruling benchmark interest rate this year despite rising upside risks to inflation on the back of global geopolitically induced supply disruptions. Kalyalya cited the current inflation ebb and aggressive fiscal measures as motivation for the May rate stance.
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Zambia’s inflation, albeit mathematically continues to slow with last print for April at 11.5% compared to 23.0% a year ago as food prices continue to fall with BOZ targeting single digit within 1 year.
Bank of England Governor Andrew Baileys biggest headache is inflation that just hit 40 year high of 9.1%.
Jerome Powell, chairman of the U.S. Federal Reserve was given another term of office but will have to tame record high inflation.
Forward looking, central banks globally are grappling with a solution to tame consumer price index with England recording a 40 year high inflation of 9.1% while the United States last printed CPI at 8.3% (April). This signals the genesis of a rate hike cycle in the West which remains a key concern for asset sell off pressure on emerging markets reducing appetite for their government securities.
Interest rates continue being toppish with yields unchanged within the MPC rate corridor as bond rates infinitesimally declining. The MPC communique highlighted an 11.5% growth in credit on recovery of the private sector though concentration remains in the public sector that continues to overcrowd the former sector.
For Zambia this remains a quagmire as the position will be dictated which effects, between improvements in sovereign outlook versus attractiveness of US and sterling guilts, outweigh. However one thing for sure is new money into the money markets remains at risk.
Rising crude prices still remain a threat to cost push pressures evidenced by producer price inflation in the construction and manufacturing space that are bearing the brunt. A stable exchange rate with the recent sentiment boost with a more certain restructure outlook has cushioned impact to some extent. Growth forecast for 2022 and 2023 have been revised downwards to 3.6% (from 4.4%) and 3.8% on the Russo-Ukrainian war autopsy which Zambia like most nations remain exposed in the area of soft commodities.
Zambia’s central bank seeks to support growth momentum by stimulating credit to the private sector that have seen immense initiatives to restore lost appetite from an acute pandemic exacerbating fiscal fragilities on the verge of correction as Africa’s ‘green’ metal producer seeks to seal id Extended Credit Facility with the Washington based lender by June this year.
The Kwacha Arbitrageur
