BANK of Zambia governor Denny Kalyalya says domestic economic activity has slowed down and near-term growth prospects remain weak.
Dr Kalyalya further says from the beginning of November, the Kwacha has come under heavy pressure.
Dr Kalyalya yesterday said the gross domestic product (GDP) was also expected to drop by about two per cent.
“Indicators of economic activity point to a further slowdown in domestic economic activity in the third quarter. For instance, mining output, electricity generation, cement production, and production of some manufactured products declined,” he said.
“Consistent with this, real GDP growth is projected to significantly decline to about 2.0 per cent in 2019 from 4.0 per cent in 2018 premised on the projected contraction in agriculture, constrained electricity generation, and lower than anticipated mining output.”
The BoZ increased the policy rate to 11.50 per cent from 10.25 per cent in August this year, representing an increase of 125 basis points.
The policy rate is the key lending rate of the central bank.
According to the BoZ, the decision was meant to counter inflationary pressures that include the exchange rate pass-through effects.
Dr Kalyala said inflation was projected to remain high by end of the year.
“On account of heightened upside risks, inflation is projected to remain above the upper bound of the 6-8 per cent target range over the entire forecast horizon. These risks, which manifest through the expectations and exchange rate channels, include persistent high food prices, electricity shortages leading to extended load shedding, slower than anticipated progress on fiscal consolidation, and high external debt service payments,” said Dr Kalyala.