The Bank of Zambia Governor Dr. Denny kalyalya says the rapid depreciation of the Kwacha by 19.5% against the US dollar in the month of September to date was initially triggered by a sustained increase in pipeline demand for oil procurement.
The central bank Governor furthers stated that the Kwacha slide was compounded by the strengthening of the US dollar following the hike in the US dollar federal Reserve lending rate and sustained negative market sentiment arising from the downgrade of Zambia’s credit rating.
He said that the depreciation was despite net supply of foreign exchange, mainly from the mining and construction sector. For the quarter as a whole, the kwacha depreciated by 4.2% against the US dollar to a quarterly average of K10.31 from 9.89 in the second quarter.
The governor revealed this during a media briefing on the Monitory Policy Committee statement held at Bank of Zambia on Wednesday.
During the presentation, it was noted that the monitory policy Committee MPC has maintain the policy rate at 9.78 % for November 19-20 2018. Although inflation is projected to exceed the upper bound of the 6-8% target range during the first three quarters of the forecast period, it is expected to return to the range thereafter.
Inflation is projected to exceed the upper bound of the 6-8% target range in the first three quarters of the forecast period, but the target range and trends will return at mid-point of 7.0% thereafter.
In addition, the MPC took into consideration the lower than expected and fragile economic growth. Based on persistent negative business sentiments, indication are that growth for 2018 may be lower than projected and the need to minimize potential vulnerabilities to the financial sector.
“Decision on the policy rate will continue to be guided by inflation forecasts and outcome as well as progress in the execution of fiscal consolidation measures. Should the heighten risk to inflation materialize, an upward adjustment in the policy rate may be necessary to prevent inflation from persistently staying above the target range” the governor said.
