BORROWING COSTS BEGIN TO EASE

Kalyalya says lower inflation cuts benchmark rate to 10.75%, with loan rates expected to fall to about 22%

By Francis Maingaila ♥️

Lusaka, Zambia24 — 30-09-2026 — The Bank of Zambia has cut its Monetary Policy Rate by 250 basis points to 10.75 per cent, a move that could bring some relief to people and businesses struggling with expensive loans.

Bank of Zambia Governor Dr. Danny Kalyalya told journalists at a media briefing this morning that the decision was mainly driven by the lower inflation outcome and a better inflation outlook.

Dr. Kalyalya said the benchmark rate had been reduced from 13.25 per cent to 10.75 per cent, with loan interest rates expected to fall to about 22 per cent.

For a small business owner who has been putting off expansion because borrowing is too expensive, or a family already feeling the weight of monthly loan repayments, the reduction could eventually make borrowing less painful if commercial banks pass the lower rate on to their customers.

Dr. Kalyalya said the 250-basis-point reduction was the largest cut in the benchmark rate in more than 25 years in Zambia.

He said the Bank had room to make the reduction because inflation had continued to fall and was now within the Bank of Zambia’s target range of six to eight per cent.

Inflation fell from 7.1 per cent in March 2026 to 6.5 per cent in June and 6.1 per cent in September.

Dr. Kalyalya explained that lower maize grain prices and the continued appreciation of the Kwacha had played an important part in bringing inflation down.

He said relatively tight monetary policy and fiscal consolidation had also helped to contain price pressures.

For ordinary Zambians, falling inflation matters because it means the sharp pressure that has been pushing up the prices of everyday goods has eased.

Dr. Kalyalya said the lower inflation environment had, therefore, given the central bank some room to reduce the pressure on borrowing while keeping a close eye on prices.

MINING DOLLARS KEEP KWACHA STRONG

Dr. Kalyalya said the mining sector continued to provide a major source of foreign currency, helping to support the Kwacha during the second quarter.

He said the Kwacha appreciated by 8.3 per cent against the United States dollar in the second quarter, although this was slower than the 14.8 per cent appreciation recorded in the first quarter.

Dr. Kalyalya said mining companies sold a net US$774 million on the foreign exchange market during the second quarter, up from US$626 million in the previous quarter.

He said mining tax payments to the Bank of Zambia also brought in US$398.7 million.

According to Dr. Kalyalya, the mining sector supplied about US$1.2 billion in foreign-exchange liquidity during the quarter, compared with US$0.9 billion in the previous quarter.

He said foreign financial institutions, however, supplied US$132.1 million down sharply from US$542.3 million in the previous quarter.

Dr. Kalyalya attributed the decline partly to the exhaustion of the allocation in the primary market for government securities.

He said the foreign exchange market moved from a net supply position of US$230.2 million in the previous quarter to net demand of US$1.19 billion in the second quarter.

Dr. Kalyalya said the Bank of Zambia supplied US$72 million to the market to help manage excessive movements in the exchange rate.

He said the central bank nevertheless remained a net buyer of foreign exchange, largely because of mining tax inflows.

Dr. Kalyalya said Kwacha's 5.8 per cent appreciation against the dollar during the second quarter compared favourably with movements in several other emerging and developing economies.

He said the Egyptian pound appreciated by 9.9 percent, the Argentine peso by 7.3 percent, the Russian rouble by 3.2 percent, the South African rand by 3.2 percent, the Mexican peso by 2.5 percent and the Chinese yuan by 1.6 percent.

He said the Nigerian naira and Kenyan shilling each appreciated by 0.4 percent, while other currencies, including the Angolan kwanza, Indian rupee, Tanzanian shilling, Ghanaian cedi, Turkish lira and Indonesian rupiah, recorded mixed movements.

Dr. Kalyalya said the Kwacha lost 5.6 per cent against the dollar between the beginning of the third quarter and September 28 but remained 11.8 per cent stronger since the beginning of the year.

He said average inflation had also been coming down steadily, from 15.3 percent in the second quarter of 2025 to 12.6 percent in the third quarter, 11.3 percent in the fourth quarter, 8.0 percent in the first quarter of 2026, 6.6 percent in the second quarter and 6.3 percent in the third quarter.

RESERVES REBOUND AFTER JUNE DROP

Dr. Kalyalya said Zambia's gross international reserves stood at US$5.8 billion at the end of June, enough to cover about 4.4 months of imports.

He said this was down from US$6.2 billion, equivalent to 5.2 months of import cover, at the end of March.

Dr. Kalyalya said reserves had actually climbed to US$6.5 billion, or 4.9 months of import cover, at the end of May before falling in June.

He said the June decline was mainly caused by the US$514.8 million bond buyback and US$453.4 million in external debt service.

Dr. Kalyalya said reserves recovered to US$6.0 billion, or 4.5 months of import cover, in July.

He said the recovery was helped by US$88.3 million in mining tax receipts, US$14.5 million in project inflows, US$13.6 million in Government non-tax receipts, US$13.0 million in interest earned on reserves and US$8.5 million from monetary gold purchases.

Dr. Kalyalya said the Bank of Zambia had continued buying locally produced gold as part of its efforts to build the country's reserves.

He said the Bank bought 62.21 kilogrammes of gold worth US$8.2 million in July, bringing total purchases from December 2020 to 3,620.43 kilogrammes.

Dr. Kalyalya said the country's gold holdings were valued at US$468.7 million, based on a gold price of US$4,160 per ounce on September 29.

EXPORTS PUSH CURRENT ACCOUNT HIGHER

Dr. Kalyalya said Zambia recorded a current-account surplus of US$0.3 billion, equivalent to 3.2 per cent of GDP, in the second quarter of 2026.

He said this was an improvement from the US$0.1 billion surplus, or 0.8 per cent of GDP, recorded in the previous quarter.

Dr. Kalyalya said the improvement came mainly from stronger net exports, lower reinvested earnings by foreign-owned companies, and higher remittances, particularly from the United States, United Kingdom, and South Africa.

He said traditional exports, made up entirely of copper, increased by 3.7 per cent to US$3.1 billion.

Dr. Kalyalya said non-traditional exports rose by 31.7 per cent to US$1.5 billion, helped by increased exports of nickel ores, sulphur, burley tobacco, and gemstones.

He said stronger export earnings were important because they brought more foreign currency into the country and helped support economic activity and the exchange rate.

CREDIT STARTS FLOWING FASTER

Dr. Kalyalya said overall domestic credit growth accelerated to 14.4 per cent in June, from 7.5 per cent in March.

He said credit to the private sector increased by 12.9 per cent, compared with 8.1 per cent in March, with much of the borrowing going towards debt refinancing and working capital.

Dr. Kalyalya said public-sector credit also increased, reaching 16.0 per cent in June from 6.6 per cent in March.

He said the increase in public-sector credit was largely linked to the Liquidity Management Operation associated with the 2053 Eurobond buyback.

BUSINESSES SEE BETTER CONDITIONS

Dr. Kalyalya said the Bank's July 2026 Quarterly Survey of Business Opinions and Expectations showed that business conditions improved during the second quarter.

He said businesses pointed to falling inflation, a more stable exchange rate, and more reliable electricity as some of the factors behind the improvement.

Dr. Kalyalya said output, new orders, demand for labour, and capacity utilisation all increased compared with the previous quarter and the same period a year earlier.

He said these measures also remained above their historical averages.

Dr. Kalyalya said businesses also reported changes in sales, services, profitability, and investment during the quarter.

GROWTH OUTLOOK BRIGHTENS

Dr. Kalyalya said Zambia's economic growth outlook remained positive, although the country still faced possible setbacks from El Niño conditions and the conflict in the Middle East.

He said real GDP growth was projected at 5.3 per cent for 2026, rising to 6.0 per cent in 2027 and 7.1 per cent in 2028.

Dr. Kalyalya said agriculture, mining, manufacturing, construction, transport, and storage were expected to remain important sources of growth.

He said the projections were based on the Bank of Zambia's July 2026 Quarterly Projection Model and took into account assessments from the Zambia Statistics Agency, the Bank of Zambia, the Ministry of Finance and National Planning, the IMF and FocusEconomics.

INTEREST RATES EASE

Dr. Kalyalya said interest rates had generally started coming down following the reduction in the policy rate and improved liquidity in the financial system.

He said the total stock of government securities stood at K270.7 billion at the end of June.

Dr. Kalyalya said Treasury bills continued to attract stronger demand than government bonds, with average subscription rates of 107.8 per cent compared with 61.7 per cent for bonds.

He said the strong demand for treasury bills was helped by favourable liquidity conditions in the money market.

Dr. Kalyalya said limited participation by residents and the reduction of government bond auctions from every month to twice a quarter may also have affected demand.

He said yields on both Treasury bills and government bonds had generally been falling since September 2024.

Dr. Kalyalya said the Treasury bill yield fell from 11.5 per cent in June 2026 to 10.8 per cent, while the government bond yield declined from 16 per cent to 15.2 per cent.

He said the broader fall in yields reflected strong investor demand, increased participation by non-resident investors in the primary market, and improved liquidity.

INFLATION EXPECTED TO STAY IN TARGET

Dr. Kalyalya said inflation was expected to remain within the Bank of Zambia's 6-8 per cent target range from the third quarter of 2026 through the second quarter of 2028.

He said average inflation was projected at 6.7 per cent in 2026, 6.0 per cent in 2027, and 6.3 per cent during the first half of 2028.

Dr. Kalyalya said stable maize prices and the delayed effect of Kwacha's appreciation were expected to help keep inflation under control.

RISKS STILL HANG OVER THE ECONOMY

Dr. Kalyalya said the outlook was not without risks.

He identified severe El Niño conditions, a prolonged conflict in the Middle East, wider geopolitical tensions, and tighter global financial conditions as some of the risks that could put pressure on the economy.

He said the Bank of Zambia would continue monitoring developments and assessing how they could affect inflation, the exchange rate, and economic activity.

Dr. Kalyalya said the 250-basis-point reduction in the Policy Rate to 10.75 per cent reflected the improvement in inflation and the wider economy.

He said the continued improvement in the inflation outlook had created room for the bank to ease monetary policy while still keeping a close watch on price stability.

Dr. Kalyalya said the Bank would continue watching inflation, the exchange rate, food prices, and developments both within Zambia and on the international market as it makes future monetary-policy decisions.