Zambia Central Bank Holds Lending Rate at 9% as Inflation Eases — Update

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By Nicholas Bariyo

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Zambia’s central bank on Wednesday held its key lending rate at 9%, for the second time in a row this year, citing easing inflationary pressure in Africa’s second-largest copper and cobalt producer.

Zambia’s recovering currency, aided by improved copper prices and high food production, has helped slow inflation to 14.1% in the first quarter of 2022 from 18.6 the previous quarter, Central Bank Governor Denny Kalyalya said.

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“It was appropriate for us to maintain the policy rate due to the sharp decline of inflation that may tend toward 6-8% toward the end of the year,” Mr. Kalyalya said.

He said Zambia’s economy continues to rebound from pandemic-related disruptions, and may expand by 3.5% this year from 3.3% last year, but warned Russia’s invasion of Ukraine poses downside risks.

Zambia, which became Africa’s first pandemic-era sovereign defaulter in 2020, received a boost late last year after it reached a $1.4 billion three-year extended credit line with the International Monetary Fund. China, which holds nearly $6 billion of Zambia’s $17 billion external debt, has agreed to join the highly indebted nation’s creditor committee as Lusaka pushes for a final debt restructuring to ease its debt burden.

Since winning the presidential election last August, President Hakainde Hichilema has introduced investor-friendly reforms to attract more investments to the country.
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Last week, as part of efforts to revive copper output to 3 million tons within a decade from the current 800,000 tons, Zambia said it had ended a legal spat with London-listed Vedanta Resources Ltd. over ownership of the Konkola Copper Mines.

Economists believe that Zambia’s copper industry is on the cusp of recovery, as Mr. Hichilema presses on with his reform agenda.

“Copper production suffered from the lingering passthrough effects of punitive policies but remedial steps are shaping a brighter future for the domestic copper industry,” Oxford Africa economics analyst Irmgard Erasmus said.

Zambia hopes to keep increasing copper output each year to profit from higher metal prices as the Russia’s war in Ukraine continues to disrupt commodity markets amid a global energy transition. Worries about China’s Covid-19 lockdowns have weighed down on the copper price in recent weeks, but traders expect the price of the industrial metal to rebound in the coming months amid booming electric vehicle manufacturing.

Write to Nicholas Bariyo at [email protected]


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