Zambia’s central bank will not compromise economic growth as it tries to address inflationary pressures arising from this year’s sharp depreciation of the kwacha, governor Denny Kalyalya said on Friday.
Kalyalya told Reuters the bank would strike a balance between rising inflation and relatively weak economic growth before making decisions on interest rates. “Our focus on inflation is to try and keep space for economic growth,” he said. The kwacha has halved in value against the dollar this year as lower copper prices have hit Africa’s second biggest producer of the metal.
A domestic electricity crunch has added to the problems for the economy, which is now forecast to grow 4.6% this year, slow by comparison to recent years. Meanwhile, inflation is likely to exceed the government’s 7% target, pushed up by the kwacha depreciation. “Anything that adds pressure to inflation rising is a great concern to us.
However, we are mindful when deciding interest rates that economic growth is not compromised,” Kalyalya said. The bank left its benchmark lending rate unchanged at 12.5% in August, saying it predicted inflation would breach the regulator’s target by the end of the year.
The kwacha had enjoyed relative stability over the last two weeks although volatility appeared to be returning in anticipation of a US Federal Reserve interest rate hike, Kalyalya added. “The fact that interest rates in the US are about to be adjusted is still on the minds of the people. So each time we go towards the end of the month you see some pressure,” he said. “There are all these bumps everybody is going through. If you look at all the economies related to commodities, we are all having these problems. We hope that stability will soon return.”