Zambia’s central bank left its benchmark interest rate unchanged for the third straight month, citing rising price pressures from food and a weaker currency.
The policy rate was left at 9.25 percent, the Bank of Zambia said in an e-mailed statement from the capital, Lusaka, today. The rate was increased by 25 basis points in October.
While inflation slowed for the first time in six months in January, there are “upward risks” from food and higher import costs because of the kwacha’s depreciation, the bank said. Monetary policy was already tightened this month when the reserve ratio for commercial banks was raised to 8 percent from 5 percent, it said.
The Monetary Policy Committee “weighed the risks to inflation and was of the opinion that the tight monetary policy action the bank has taken in January 2013” will “further assist in dampening inflation threats,” the bank said.
President Michael Sata in November called on Governor Michael Gondwe to lower commercial interest rates in Africa’s biggest copper producer to support the economy. A month later, the Bank of Zambia introduced a cap on borrowing charges for commercial lenders, linking it to the policy rate.
Inflation slowed to 7 percent in January from 7.3 percent in the previous month as prices of corn meal, the staple food, grew at a slower pace, the Central Statistics Office said today. Zambia’s economy probably grew 7.3 percent last year, and will expand more than 7 percent in 2013 and 2014, the World Bank said Dec. 11.
The kwacha fell 0.9 percent to 5.40 to the dollar by 3:30 p.m. in Lusaka, taking its decline this year to 3.9 percent. A close at this level would be the lowest since May 2009.
“The weakening of the kwacha remains a concern for the Bank of Zambia,” Yvette Babb, an emerging market strategist at Johannesburg-based Standard Bank Ltd., said in e-mailed comments before the rates announcement. “The risks to inflation and the exchange rate remain to the upside.”