The Bank of Zambia has kept its key interest rate at a record low to allow the impact of previous cuts to filter through the economy.
The monetary policy committee held the rate at 8%, Governor Christopher Mvunga told reporters Wednesday in Lusaka, the capital, after leading his first meeting of the panel.
The Monetary committee had to balance boosting the country’s economy with attracting inflows and supporting the kwacha as it weakened even further after Zambia failed to make an interest payment on Friday on one of its Eurobonds. That made the country the continent’s first pandemic-era sovereign default.
According to the latest tracking by Bloomberg, the kwacha has weakened 32% against the dollar this year, making it the worst performer of all currencies on the continent.
The depreciation has added to inflation, which has been above the central bank’s target band of 6% to 8% for 18 straight months and quickened to 16% in October.
While the rate of price growth is expected to moderate over the next two years, it’s likely to remain above target, Mvunga said. Risks to the inflation outlook remain tilted to the upside, he said. The economy will probably contract by 4.2% this year and recover at a slower pace than previously thought due to limited fiscal space, he said.
“Successfully navigating the debt-restructuring process to restore debt sustainability and implementing fiscal and other structural reforms are critical to return to fiscal fitness,” Mvunga said.