Zambia Cuts Rates as Inflation Eases, Bucks Global Pause

Zambia’s central bank extended its easing cycle as inflation is projected to cool further, even as most policymakers globally adopt a wait-and-see approach to gauge the Iran war’s impact on their forecasts.

The monetary policy committee lowered the benchmark interest rate to 13.25% from 13.5%, Governor Denny Kalyalya told reporters in the capital, Lusaka, on Wednesday. That was the third successive rate cut.

Zambia joins a small group of economies including the Democratic Republic of Congo and Guinea that have reduced borrowing costs since the war erupted on Feb. 28 as most central banks hold steady.

“In arriving at this decision, the committee took into account” the expected favorable corn harvest during the current crop marketing season and the relative stability in the exchange rate, Kalyalya said. The “upside risks and uncertainty associated with the Middle East conflict warranted a cautious adjustment.”

While inflation has been within the central bank’s 6% to 8% target band since February and continues to slow, the war with Iran presents new challenges for the net importer.

The conflict has led to a surge in food, fertilizer and energy costs due to the blockade of the Strait of Hormuz, a transit point for at least a fifth of the world’s seaborne oil and liquefied gas and a key share of crop nutrients.

Zambia has managed to partially offset the impact of the higher prices by suspending fuel taxes until the end of June and zero-rating value-added tax. It is also seeking financial support from the International Monetary Fund and World Bank to address the fallout from the war and is in talks with the IMF for a new program that’s expected to be concluded after August elections.