Zambia raises interest rates to 15.5%

The Bank of Zambia raised its benchmark lending rate by a record 3 percentage points to rein in inflation after the currency of Africa’s second-biggest copper producer lost almost half its value this year.

The central bank increased the policy rate to 15.5 per cent from 12.5 per cent, Governor Denny Kalyalya told reporters in Lusaka, the capital, on Tuesday. The median estimate of three economists surveyed by Bloomberg was 14 per cent.

“We feel it’s really important that we have inflation anchored so that it doesn’t get unhinged,” Kalyalya said. The inflation rate almost doubled to 14.3 per cent in October, triggered by power shortages and the kwacha’s 49 per cent plunge against the dollar this year, the most of 155 currencies tracked by Bloomberg.

That’s forced the Bank of Zambia to act even as economic growth slows because of drought and falling copper revenue. Barclays is forecasting expansion of 3.4 per cent this year, which would be the slowest pace in 17 years.

“A hike in the policy rate may have negative implications as investors may find it costly to borrow,” Brian Chintu, head of investments at Madison Asset Management in Lusaka, said in an e-mailed reply to questions before the rate decision. “This ultimately means even the individuals who would ideally borrow to construct their house or invest in a small poultry project will think twice before they approach the lending institutions.”

The kwacha gained 0.4 per cent to 12.5322 against the dollar as of 11:30 a.m. in Lusaka on Tuesday. The central bank last raised the benchmark rate 12 months ago by 50 basis points. It will hold its next rate meeting in February.

Bloomberg