After first days of meetings between an International Monetary Fund (IMF) delegation who recently arrived to Zambia to review the country’s economic situation, the Bank of Zambia (BOZ) decided to raise the overnight lending rate from 21.5% to 25.5% on November 13th, 2015 which places it exactly 1,000 basis points above the country’s official interest rate of 15.5% recently raised from 12.5% by the BOZ.
As a result the exchange rate ZMW/USD has strengthened 5.18% from a peak of 14.28 to trade currently stable at 13.54 even though copper prices kept falling by 0.55% to a new average low of USD 216.35 per pound on the same day.
The measure of rising the overnight lending rate is in line with BOZ’ monetary stance of attenuating inflationary pressures, explained BOZ Deputy Governor Bwalya Ng’andu.
It also shows the BOZ willingness to use all policy tools to reverse the ZMW depreciation, explained Standrad Chartered Bank Africa Chief Economist Razia Khan in an interview with Reuters.
Previously, the BOZ had removed limit of foreign exchange trade with commercial banks, injected USD into the economy and raised Zambia’s official interest rate from 12.5% to 15.5% to support the ZMW after it depreciated 111.89% on a year to date basis while copper price fell by 23.25%.
According to the IMF, Zambia’s economy has been under downward pressure the last two years due to copper prices at six-year low and fiscal imbalances which reduced the country’s international reserves and contributed to the Kwacha’s (ZMW) depreciation.