BANK of Zambia governor Christopher Mvunga believes there is a clear economic recovery path, although difficult.
The central bank’s Monetary Policy Committee has increased the policy rate from eight to 8.5 per cent.
Giving the first quarterly briefing for this year, Mvunga called upon the nation to rise collectively and face the current economic challenges.
“…The current challenges notwithstanding, we as a country must rise to face the difficulties that we are facing collectively. We believe that there is a clear, albert difficult, path to economic recovery and growth,” he told journalists yesterday. “This path requires the effective implementation of the measures contained in the government’s recently launched Economic Recovery Programme. In this regard, mobilising external support and the successful restructuring of our external debt are critical components in achieving fiscal sustainability, re-establishing macroeconomic stability and reinvigorating sustainable growth, with concerted and collective action, Zambia can come out of the COVID-19 induced crisis a stronger and more resilient economy.”
On inflation, Mvunga predicted a further acceleration if crude oil prices continue to increase on the international market.
“Over the next eight quarters, inflation is projected to deviate further away from the upper bound of the six to eight per cent target range due to the lagged pass-through from the depreciation of the kwacha and sustained high fiscal deficits,” Mvunga said. “The risks to the inflation outlook are assessed to be tilted to the upside. Inflation is bound to accelerate further if crude oil price increases persist, fiscal deficits turn out to be higher than projected and the exchange rate depreciates further.”
On the country’s fiscal performance, Mvunga said it remained a challenge, attributing this to escalating COVID-19 cases and the debt restructuring process.
On foreign exchange, the governor said demand continued to escalate due to higher import requirements for petroleum products and agriculture inputs under the Farmer Input Support Programme.
And Mvunga said the Monetary Policy Committee considered various aspects before increasing the policy rate.
“… The [monetary policy committee] MPC decided to raise the policy rate by 50 basis points to 8.50 per cent. In arriving at this decision, the committee took into account the rising inflationary pressures, with inflation projected to deviate further away from the target over the next eight quarters,” said Mvunga. “This decision was taken while being mindful of the weak economic environment and fragilities in the financial sector. The decision is primarily aimed at anchoring inflation expectations which is critical in restoring macroeconomic stability. Should inflation persist above the upper bound of the six to eight per cent target range, the Bank of Zambia stands ready to further tighten monetary policy.”