Zambia Cuts Policy Rate to 10.75% on Improved Inflation Outlook

The Bank of Zambia has cut its monetary policy rate by 250 basis points to 10.75 percent, citing a sustained decline in inflation and an improved outlook for price stability.

The decision was taken by the Monetary Policy Committee (MPC) at its September 28–29, 2026 meeting, as inflation continued to move towards the lower end of the central bank’s 6–8 percent target range.

Inflation fell from 7.1 percent in March to 6.5 percent in June before declining further to 6.1 percent in September. Quarterly inflation averaged 6.6 percent in the second quarter and 6.3 percent in the third, down from 8.0 percent in the first quarter.

The decline was driven mainly by lower maize prices and continued appreciation of the Zambian kwacha against major currencies. The fall in maize prices followed a record harvest of 4.9 million metric tonnes during the 2025/26 farming season.

The kwacha’s appreciation was largely supported by higher export earnings, particularly from the mining sector, alongside improved foreign-exchange liquidity following currency directives issued in December 2025.

The central bank has also lowered its inflation forecasts. It now expects inflation to average 6.7 percent in 2026, compared with its previous forecast of 6.8 percent. For 2027, inflation is projected at 6.0 percent, down from 6.7 percent previously, before rising to 6.3 percent in the first half of 2028.

The Bank of Zambia said the outlook largely reflects expectations of stable maize prices and the delayed impact of the kwacha’s appreciation.

The MPC nevertheless identified several risks that could push inflation higher. Expected super El Niño conditions could affect agricultural production and electricity generation, potentially raising food and energy prices. The prolonged conflict in the Middle East and wider geopolitical tensions could also drive global crude oil prices higher and increase domestic fuel costs.

Tighter global financial conditions pose another risk, as rising inflation globally could reduce capital flows to emerging and developing economies and put pressure on their currencies.

Against this backdrop, the MPC said the 250-basis-point reduction would align monetary policy with the improved inflation outlook while supporting lower financing costs across the economy and, ultimately, economic growth.

The central bank said future policy decisions would continue to be guided by inflation outcomes, forecasts and identified risks, including those related to financial stability.

The Bank of Zambia is due to publish its August 2026 Monetary Policy Report by October 14. The next MPC meeting is scheduled for November 25–26, 2026.

Source: FSX Business News