Relief Still Limited

CSPR says policy rate cut may not translate into cheaper credit or meaningful household relief without structural reforms in banking and fiscal policy

By Francis Maingaila ♥️

Lusaka, Zambia24  --- (26-05-2026) --- The Civil Society for Poverty Reduction (CSPR) has welcomed the Bank of Zambia’s decision to reduce the Monetary Policy Rate (MPR) by 25 basis points to 13.25 percent but says the expected relief for households and businesses remains uncertain.

Isabel Mukelabeli told Zambia24 that the rate cut reflects improving economic conditions, including lower inflation and more stable external finances following the Monetary Policy Committee meeting held on 11–12 May and announced by Bank of Zambia Governor Dr. Denny Kalyalya.

Mukelabeli said the decision follows a long tightening cycle that began in 2022, when the policy rate stood at 9.25 percent and later rose to 14.5 percent in January 2025 to contain inflationary pressures.

Mukelabeli said inflation has now declined from 11.9 percent in October 2025 to 6.8 percent in April 2026, moving within the government target range of 6–8 percent.

She said food inflation has also eased from 7.8 percent to 7.3 percent, supported by improved harvests, a stable Kwacha, stronger mining earnings, and better global conditions.

Mukelabeli said macroeconomic stability has improved, with international reserves rising to about US$6.4 billion, equivalent to 4.4 months of import cover, while Zambia recorded a primary fiscal surplus of 3.1 percent of GDP in 2025, according to IMF estimates.

Mukelabeli said despite these gains, inflation in Zambia remains largely driven by supply-side pressures such as transport costs, fuel import dependence, exchange rate volatility, and climate-related shocks, which monetary policy alone cannot resolve.

Mukelabeli said monetary policy also has a limited impact on demand, with changes in the policy rate producing only a small effect on economic activity.

Mukelabeli said commercial lending rates remain high, often above 25 percent, making it difficult for SMEs, farmers, youth entrepreneurs, and informal traders to access affordable credit.

Mukelabeli said banks have not fully transmitted policy rate changes due to high risks, operating costs, and non-performing loans, weakening the effect of monetary easing on the wider economy.

Mukelabeli said as a result, the recent rate cut may not significantly improve incomes or borrowing conditions for most households already facing expensive debt.

Mukelabeli said two outcomes are possible. She said if banks reduce lending rates and expand credit, the economy could see increased investment, job creation, and growth in sectors such as agriculture, manufacturing, mining, tourism, and trade.

Mukelabeli said this could also improve food supply, stabilize prices, and support household purchasing power.

Mukelabeli warned that if banks fail to adjust lending rates, the impact will remain limited, especially if fuel prices rise, electricity shortages continue, and investor confidence remains weak.

Mukelabeli also raised concern over government’s rising domestic borrowing, saying it could crowd out private sector lending as banks prefer investing in Treasury bills and government bonds.

Mukelabeli cited the 2026 national budget and a supplementary budget that added K7.5 billion in domestic borrowing as increasing pressure on the financial system.

Mukelabeli called for stronger coordination between monetary and fiscal policy to ensure that inflation control supports growth and job creation.

Mukelabeli urged government to reduce domestic borrowing, strengthen fiscal discipline, and review the statutory reserve ratio, which has remained at 26 percent since 2022.

Mukelabeli also called for increased investment in energy infrastructure and agricultural productivity to address structural drivers of inflation.

Mukelabeli said monetary policy should be judged not only by inflation outcomes but also by its impact on jobs, incomes, and inclusive growth.

Mukelabeli warned that without fixing credit transmission and supply-side constraints, the benefits of the rate cut will remain limited for ordinary citizens.

CSPR reaffirmed its commitment to monitoring economic developments and advocating for policies that support poverty reduction and inclusive growth in Zambia.