Bank of Zambia cut its benchmark interest rate on Wednesday for a third consecutive meeting, saying inflation was expected to remain within the target range despite uncertainty linked to the conflict involving Iran.
The central bank lowered its Monetary Policy Rate by 25 basis points to 13.25 percent, surprising economists polled by Reuters who had expected rates to remain unchanged.
Bank of Zambia Governor Denny Kalyalya said the decision was supported by expectations of a favourable maize harvest and relative stability in the local currency, the kwacha.
“In arriving at this decision, the bank took into account the expected favourable maize harvest during the current crop marketing season and the observed relative stability in the exchange rate of the kwacha,” Kalyalya told a press conference.
The latest cut follows a larger 75-basis-point reduction in February as authorities seek to support economic activity while keeping inflation under control.
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Annual inflation slowed for a fourth straight month to 6.8% in April from 7.1% in March, remaining within the central bank’s target range of 6% to 8%.
Kalyalya said inflation was projected to stay within that range over the medium term, although external risks linked to the conflict in the Middle East required policymakers to remain cautious.
He cited uncertainty stemming from what he described as the U.S.-Israeli war against Iran, warning that higher global energy prices could still pose upside risks to inflation.
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The conflict has fuelled concerns across emerging markets about rising oil prices, supply chain disruptions and renewed pressure on import costs.
To cushion households and businesses from higher fuel prices, Zambia suspended some fuel taxes for three months starting in April.
The southern African country, one of Africa’s major copper producers, is heavily dependent on fuel imports and remains vulnerable to fluctuations in global energy markets.
The central bank now forecasts average inflation of 6.8% in 2026 and 6.1% in 2027, suggesting policymakers expect price pressures to continue easing.
Analysts said the smaller rate cut signalled the central bank’s attempt to balance support for economic growth with caution over external shocks.
Zambia has been pursuing economic reforms under an International Monetary Fund-supported programme aimed at stabilising public finances and restoring investor confidence after years of debt distress and high inflation.
Recent improvements in inflation and exchange rate stability have raised expectations of a gradual recovery in economic activity, supported partly by the mining sector and anticipated gains in agricultural production following improved rainfall.
However, economists warn that external risks, particularly sustained increases in oil prices and global financial market volatility, could complicate the country’s recovery efforts and put renewed pressure on inflation and the currency.
