Rate Cut Not Enough

CSPR warns that vulnerable households may see little relief without fiscal action.

By Francis Maingaila ♥️

Lusaka, Zambia24 – The Civil Society for Poverty Reduction (CSPR) says the Bank of Zambia’s 25-basis-point reduction of the Monetary Policy Rate (MPR) is not enough to ease the financial pressure facing households warning, that the development will have limited impact on poverty reduction without strong fiscal support and targeted social protection programmes at a time when inflation remains above target and families continue to struggle with rising living costs.

CSPR Executive Director Isabel Mutembo Mukelabai said lowering the MPR from 14.5% to 14.25% signals the central bank’s attempt to stimulate economic activity by reducing borrowing costs.

She noted the move follows recent disinflation trends, with inflation falling from 14.1% in June to 11.9% in October 2025. However, the rate still lies outside the government’s 6–8% target band.

Mukelabai said food prices remain the biggest driver of inflation despite a 3.6 million-tonne bumper maize harvest. She added that the upward revision of the 2025 inflation projection to 13.8% shows that many households still cannot meet the cost of basic needs.

She also highlighted power shortages, rising grain prices, and Zambia’s reliance on imported commodities as ongoing threats to price stability.

"These pressures, CSPR said, reduce household purchasing power and worsen poverty levels," she said.

The organisation questioned the effectiveness of monetary policy transmission. Mukelabai said that unless commercial banks ease lending conditions, the reduced policy rate may not improve access to credit for small businesses and households. High collateral requirements and aggressive risk pricing remain major barriers.

She further observed that although Zambia’s foreign reserves currently stand at 5.2 months of import cover, this strength has been boosted largely by the IMF Extended Credit Facility, which ends in January 2026. 

Mukelabai warned that Zambia will need alternative foreign-exchange sources to maintain stability once IMF support ends.

CSPR said the MPR adjustment could provide slight short-term relief through cheaper borrowing. In the medium term, it may support investment and job creation if credit flows into productive sectors and social protection programmes are expanded.

However, Mukelabai warned that continued inflation pressure could weaken both outcomes. She said poorly timed easing could fuel currency instability if not supported by strong fiscal interventions.

“There is need for monetary policy vigilance and complementary fiscal measures to protect vulnerable households,” she said.

CSPR has urged government to expand inclusive financial reforms, increase targeted credit for smallholder farmers and women-led enterprises, and relax collateral requirements to support productive investment.

The organisation also called for close monitoring of food-price movements to ensure swift policy responses that shield vulnerable populations.