The Central Bank of Zambia has increased its benchmark lending rate by 50 basis points to 8.50 per cent in response to the escalation of the inflation rate and a weak economic environment.
On Wednesday, the bank’s Governor, Christopher Mvunga said it was part of the Monetary Policy Committee meeting’s decisions.
“The decision balances the need to contain rising inflation and anchor inflation expectations against the efforts made to support financial system stability and growth,” Mvunga said.
He explained that in ensuring inflation remains well anchored in the medium term, it was essential to moderate the financial sector’s moderate fragilities and support economic recovery.
According to him, escalation in the inflationary pressures pushed inflation further away from the 6-8 per cent target range.
Zambia’s annual inflation has been on a rising trajectory reaching 21.5 per cent in January mainly driven by a rise in food prices.
The central bank chief further said implementing a strong fiscal policy adjustment was critical in restoring macroeconomic stability.
Although the economy was projected to recover in 2021, Mvunga expressed concerns that uncertainty surrounding the resurgence of the COVID-19 pandemic would pose a risk to the growth outlook.