“Inflation Dips, Kwacha Strengthens”

Bank of Zambia maintains MPR at 14.5% amid positive economic trends

By Francis Maingaila

Lusaka, Zambia24— August 13, 2025 — The Bank of Zambia (BoZ) has maintained its Monetary Policy Rate (MPR) at 14.5 percent following the August 11-12 Monetary Policy Committee (MPC) meeting, citing declining inflation, a stronger domestic currency, improved foreign exchange and credit conditions, and stronger economic activity.

Governor Danny Kalyalya said inflation had fallen from 16.5 percent in March to 14.1 percent in June, and further to 13.0 percent in July, driven by improved maize supply, lower fuel prices, and the appreciation of the Kwacha against major currencies.

He explained, “The declining trend is expected to continue over the next eight quarters, with inflation projected to enter the 6-8 percent target band by the first quarter of 2026, earlier than previously projected.”

While welcoming the progress, Kalyalya noted that inflation remains above the target range.

He added, “At the current level, inflation is well above the 6-8 percent target band, and uncertainties associated with global trade policies and persistent geopolitical tensions remain.”

He also highlighted that market expectations of inflation, although moderated, remain high relative to the target band.

On the foreign exchange market, the Governor reported that the Kwacha appreciated by 14.4 percent against the US dollar in Q2 2025, compared to a 4.0 percent depreciation in Q1 2025.

He said, “The appreciation was largely driven by increased foreign exchange supply, particularly from the mining sector, improved investor sentiment, and a weaker US dollar.”

Kalyalya noted that the mining sector continued to dominate foreign exchange inflows, increasing by 22.1 percent to US$680.1 million in Q2 2025, with US$262.1 million remitted directly to the Bank of Zambia for tax obligations.

He added that improved supply helped reduce excess foreign exchange demand to US$156 million from US$257 million in the previous quarter.

He also highlighted the Bank’s efforts to strengthen the country’s external buffers.

“Gross international reserves increased to US$4.7 billion at the end of June, equivalent to 4.6 months of import cover, up from US$4.5 billion at the end of March. Project receipts, net statutory reserve deposits, and Bank of Zambia purchases were the key drivers of this increase,” he said.

Kalyalya added that during the quarter, the Bank purchased 77.76 kilograms of gold valued at US$8.2 million, bringing total holdings since December 2020 to US$315.8 million.

On credit developments, Kalyalya said overall domestic credit growth slowed to 12.7 percent year-on-year in June from 15.3 percent in March.

He explained that private sector credit growth edged down to 19.8 percent from 23.0 percent, due to marginal reductions in lending to the manufacturing, construction, wholesale and retail trade, and real estate sectors.

Lending to government also declined, reflecting lower demand for Treasury bills and bonds amid reduced liquidity levels. Total outstanding Government securities stood at K239.57 billion at the end of July, with non-resident investor holdings accounting for K61.22 billion, or 25.5 percent.

Kalyalya said economic activity continued to improve in the second quarter, with business conditions for the private sector assessed as favorable according to the Stanbic Bank Zambia Purchasing Managers Index (PMI).

He noted that the Bank of Zambia Quarterly Survey of Business Opinions and Expectations (QSBOE) for August 2025 “indicates a pick-up in activity, underpinned by stronger agricultural output, higher labor demand, and increased capacity utilization.”

Looking ahead, the Governor said that over the medium term, prospects for domestic economic growth remain positive.

“Mining, agriculture, ICT, and wholesale and retail trade sectors are expected to drive growth,” he said, noting that these sectors will support sustained economic expansion and job creation.

Kalyalya also discussed the drivers of the improved inflation outlook.

He said it reflects the lagged effects of the appreciated exchange rate, lower food and energy prices, past monetary policy measures, as well as structural and fiscal policy reforms.

Risks to the inflation outlook, he noted, remain mostly on the downside, linked to expected increased earnings from copper exports, subdued crude oil prices, and further progress on external debt restructuring.

Governor Kalyalya said that the MPC’s decision to maintain the policy rate at 14.5 percent would consolidate gains achieved on inflation while supporting macroeconomic stability.

He reaffirmed that the Bank of Zambia remains committed to monitoring economic developments and using monetary policy tools to ensure sustainable price stability while supporting ongoing economic growth.