The Bank of Zambia (BoZ) has raised its base interest rate by 0.5 percentage points, moving from 14% to 14.5%, in a strategic effort to stabilize the Kwacha and control inflation.
Why the Rate Hike?
The decision, announced after the Monetary Policy Committee (MPC) meeting held from February 10-11, aligns with the central bank’s goal of steering inflation back to its target range of 6-8% over the medium term.
Governor Dr. Denny Kalyalya emphasized that the higher inflation outlook for 2025 stems from persistent inflationary pressures and the continued depreciation of the exchange rate.
Impact of the Energy Crisis on Inflation
A major driver of inflation has been the introduction of emergency electricity tariffs, implemented in response to Zambia’s severe drought, which has disrupted hydropower generation. This has led to a sharp rise in non-food inflation, increasing from 12.2% in October 2024 to 14.1%.
Government’s Plan for Energy Resilience
To reduce dependence on hydropower and enhance energy security, Zambia is accelerating alternative energy projects, including:
✅ Maamba Energy Phase II coal-fired plant
✅ ZESCO’s 100MW Chisamba Solar Project
What’s Next for Inflation?
Despite current inflationary pressures, the MPC remains cautiously optimistic, citing potential improvements in food supply and electricity generation that could help ease price pressures in 2025.
As the BoZ continues to adjust its monetary policies, businesses and consumers alike will be closely watching how these measures impact Zambia’s economic stability in the months ahead.
