The Bank of Zambia -BOZ has increased the monetary policy rate by 100 basis points to 11 percent from the previous 10 percent in quarter 3.
Speaking at a monetary policy committee -MPC- announcement in Lusaka attended by the Zambian Business Times -ZBT-, BOZ governor Dr. Denny Kalyalya attributed the increase to the persistent inflationary pressures since the last MPC in August.
Dr. Kalyalya noted that inflation rose to an average of 11.0 percent in the third quarter from 9.9 percent in the second quarter. He further noted that inflation increased to 12.6 percent from 12.0 percent in September.
Dr. Kalyalya said that higher food mostly maize and its products, retail fuel prices as well as the depreciation of the kwacha against the US dollar have been major drivers of these inflationary pressures.
While the increase in MPR is a necessary move to control inflation and stabilize the economy, its impact on the economy and ordinary citizens, cannot be overlooked. The MPR is the benchmark interest rate used by the Central Bank to control inflation and regulate the money supply in the economy.
The increase in interest rates means that the cost of borrowing money from banks and other financial institutions will also increase. This move is expected to discourage borrowing and spending, which will help to reduce inflationary pressures in the economy.
On the other hand, the increase in interest rates will negatively affect businesses, especially those that rely on borrowed funds to operate, and further increase the cost of production, which may lead to an increase in the prices of goods and services.
Details to follow…
