Today the 21 August, Bank of Zambia Governor Dr. Denny Kalyalya will announce the benchmark interest rate for the quarter after two days of deliberations that commenced on Monday 21 August. Last meeting the monetary policy committee hiked the policy rate 50bps to 10.25% in them he first rate hike since December 2015 when the BOZ hiked interest rates 300bps to a record 15.5%. This was a move aimed at curbing a sliding currency that had weakened to records exceeding the 14.2 mark.
Risks to growth heightening fast
With a few hours to announcement, Zambia grapples with heightening risks to inflation fueled by drought effects on food production and energy generation. Load management has widened to more than 4 hours on account of breakdown of one generator at Nava Bharats owned Maamba geothermal 300MW plant adds pressure on manufacturing capability on business pulse that is already in contraction over the last 10 months at 44.4 (July). 50 is the borderline for contraction and the expansion.
Kwacha is losing ground steadily
The currency has extended its weakening streak trading for 13.2 on retail side was 13.05 on the corporate end sparking worries for cost push inflation effects. Fitch solutions in their note on Zambia forecast that the copper currency is on depreciating trajectory as sentiments weighs worser in the medium term to long term.
Will BOZ hike rates?
Analyst gamble as to what stance Kalyalya and his team will take today in light of a forward looking view on Zambia. With anemic growth there are calls for stimulus but at a time the BOZ has very little latitude to ease monetary policy as it focuses more on addressing effects of risks to growth which have cost Zambia a lower GDP expansion expectation to between 2.2%-2.5% in 2019.
We are still of the view the MPC will hold rates but tighten money supply further using other tools as they balance growth prospects. (90% likelihood of flat rate outcome, 10% of a rate hike – BT Research team)