MONETARY POLICY COMMITTEE STATEMENT

FOR THE FOURTH QUARTER OF 2023

GOVERNOR’S PRESENTATION TO THE MEDIA

MAY 15, 2024

OUTLINE OF PRESENTATION

1. Decision of the Monetary Policy Committee

2. Inflation Outturn and Outlook
3. Foreign Exchange Market
4. Credit Developments
5. Economic Activity
6. Conclusion

2
DECISION OF THE MONETARY POLICY COMMITTEE
At its Meeting held on May 13-14, 2024, the Monetary Policy Committee (MPC) decided
to increase the Policy Rate by 100 basis points to 13.5 percent.
▪ The decision was informed by:

o continued movement of inflation away from the 6-8 percent target;

o persistent rise in inflation expectations, which if left unchecked, are poised to

undermine macroeconomic stability and efforts toward robust and sustained
growth; and

o inflation projection indicating it will average 13.7 percent in 2024, higher than the
February forecast of 12.9 percent.

▪ This decision, therefore, augments earlier actions aimed at containing persistent

inflationary pressures, acting mostly through the exchange rate channel, and
addressing rising inflation expectations.

3
 INFLATION OUTTURN

• Average inflation rose to 13.5 percent in the first quarter of 2024 from 12.9 percent
in the last quarter of 2023 (Table 1). In April, annual inflation increased to 13.8
percent from 13.7 percent in March.

• The underlying factors have largely been persistent depreciation of the Kwacha
against major currencies and rising prices of food (maize grain, maize products, and
vegetables) and energy (fuel) (Charts 1 and 2).

4
 INFLATION OUTTURN

Table 1: Quarterly Average and end-Period Inflation Rate (Percent)

Average Q1 2023 Q2 2023 Q3 2023 Q4 2023 Q1 2024

Overall
Inflation 9.6 9.9 11.0 12.9 13.5
Food
Inflation 11.7 11.5 12.7 13.8 14.5
Non-food
Inflation 6.8 7.9 8.8 11.6 12.1
End
Period Q1 2023 Q2 2023 Q3 2023 Q4 2023 Q1 2024
Overall
Inflation 9.9 9.8 12.0 13.1 13.7
Food
Inflation 11.8 11.2 13.4 14.2 15.6
Non-food
Inflation 7.3 7.8 10.1 11.6 11.2

Source: Zambia Statistics Agency and Bank of Zambia Compilations

5
 INFLATION OUTTURN
Chart 1: Contribution to Overall Inflation by Product in the Chart 2: Contribution to Overall Inflation by Product in April
First Quarter of 2024 (percentage points) 2024 (percentage points)
Breakfast Mealie Meal
Breakfast Mealie Meal
Roller Mealie Meal
Charcoal
Maize grain
Roller Mealie Meal
Sugar
Maize grain
Rice Imported
Sugar
Purchase of Second hand
Rice Imported
Firewood Boom
Boom Dried Kapenta Siavonga
Charcoal Frozen Fish
Frozen Fish Rape
Rape Bread
Dried Kapenta Siavonga Dried Kapenta Mpulungu
Nissan Pick Up Bun
Bread Maize cobs

Dried Kapenta Chisense Cabbage

Cabbage Fresh Milk

Cooking oil Imported
Bun
Cooking oil Local
Chicken Live
Chicken Live
Toyota corolla
Eggs
Toyota hilux
Bar soap (Chik)
Ladies skirt imported
Rice Local
Pork Chops
Mens trousers Imported
Mens trousers Imported
Butter
Bread Flour Imported
Nissan Pick Up
Chicken Frozen Toyota corolla
Irish potatoes Bacon
Tomatoes Tomatoes
Dried Kapenta Mpulungu Dried Bream
Buka Buka Buka Buka

-0.5 0.0 0.5 1.0 1.5 2.0 2.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5

6
 INFLATION OUTLOOK
• At the last MPC Meeting in February, inflation was projected to remain above the 6-8
percent target band. The current forecast for 2024 points to inflation moving further
away from the target band, but move into the band in the last quarter of 2025 (Chart 3
and Table 2).

• For 2024, inflation is now projected at 13.7 percent from 12.9 percent in February.
Sustained depreciation of the Kwacha as well as the adverse impact of the drought on
food and energy prices mainly account for the increased deviation from the band in
2024.

• In 2025, inflation will average 9.8 percent from 9.9 percent while in the first quarter of
2026 it will average 7.4 percent. The projected moderation in inflation is mostly due to
the expected recovery in output, declining global food prices, and a more favourable
external sector environment.

• A weaker Kwacha, rising prices of maize grain and fuel, geopolitical tensions, and
prolonged tight global financial conditions remain key upside risks to the inflation
7
outlook.
 INFLATION OUTLOOK
Chart 3: Inflation – Outcome and Projection Table 2: Projected Average Inflation (percent)
(percent)
2024 2025 2026 Q1
May-2024 13.7 9.8 7.4
Projection
Feb-2024 12.5 9.9 n/a
Projection

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 FOREIGN EXCHANGE MARKET
• In the first quarter of 2024, the rate of depreciation
of the Kwacha against the US dollar moderated to Chart 4: Nominal Exchange Rates
10.6 percent from 17.5 percent in the last quarter of 38.0 1.5
2023 (Chart 4). ZMW/USD
ZMW/GBP 1.4
36.0
ZMW/EUR
ZMW/ZAR(RHS) 1.3
• Pressure on the Kwacha to depreciate at a faster 34.0
1.2
pace has re-emerged in the second quarter with the 32.0 1.1
exchange rate depreciating by 10.2 percent to
30.0 1.0
K27.37 as at May 10, 2024. Sustained low supply of
0.9
foreign exchange amid elevated demand accounted 28.0
for this depreciation (Chart 5). 26.0
0.8
0.7
24.0
• However, the Kwacha appreciated by 7.8 percent to 0.6

K25.24 during May 10 – 14 due to improved supply, 22.0 0.5

especially by foreign financial institutions, and 20.0 0.4
positive sentiments following news of progression 0.3
18.0
in external debt restructuring (circulation of 0.2
Eurobond Consent Solicitation). 16.0 0.1
14.0 0.0

02-Aug-23
14-Apr-23

06-May-23
17-May-23
28-May-23

11-Jul-23
22-Jul-23

13-Aug-23
24-Aug-23

01-Dec-23
12-Dec-23
23-Dec-23

14-Jan-24

03-May-24
14-May-24
03-Apr-23

25-Apr-23

08-Jun-23

26-Sep-23
07-Oct-23
18-Oct-23
29-Oct-23

20-Nov-23

03-Jan-24

25-Jan-24
05-Feb-24
16-Feb-24
27-Feb-24
09-Mar-24

11-Apr-24
22-Apr-24
01-Mar-23
12-Mar-23
23-Mar-23

19-Jun-23
30-Jun-23

04-Sep-23
15-Sep-23

09-Nov-23

20-Mar-24
31-Mar-24
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 FOREIGN EXCHANGE MARKET
• To moderate volatility and broadly Chart 5: Mining Taxes Paid Directly to BoZ in US Dollars
(US$ million)
support the importation of critical
commodities, the Bank provided market 600
Mineral Royalty Non-Mineral Royalty
support of US$369 million. 500

400
313.5
300 219.4

200 164.9
175.8 167.1
106.7 115.8 143.4125.5
100 202.6 180.8
125.2
78.4 71.5 66.6 89.3 40.7 65.3
0

2022 Q1

2022 Q2

2022 Q3

2022 Q4

2023 Q1

2023 Q2

2023 Q3

2023 Q4

2024 Q1
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 FOREIGN EXCHANGE MARKET
• Notwithstanding market support, gross Chart 6: Gross International Reserves
international reserves increased to US$3.6 4,000 6.0
billion (equivalent to 3.9 months of import 3,500
cover) at end-March 2024 from US$3.3 3,000
5.0

billion (3.7months of import cover) at end- 4.0

2,500
December 2023 (Chart 6). This was mainly

Months of Import Cover

US$ millions
attributed to net statutory reserves. 2,000 3.0

1,500
2.0
• In the first quarter of 2024, gold purchases 1,000
1.0
amounted to US$10.6 million. This brings 500

the total value to US$168.1 million since 0 0.0

Mar-24
Jun-22

Jun-23
Mar-22

Sep-22

Mar-23

Sep-23
Dec-22

Dec-23
the Bank started purchasing gold locally.
Gross (Unencumbered Reserves & Encumbered
Reserves at Market Rate in US$ billions)
Months of import cover for GIR (RHS)

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CREDIT DEVELOPMENTS

• Domestic credit growth slowed down in Chart 7: Contribution to y/y Domestic Credit Growth
March 2024 to 10.5 percent from 18.1
45 50
percent in December 2023 due to reduced 40 45
40
lending to both Government and the 35
35

Percentage Points
30
private sector (Chart 7). 25 30
25

Percent
20
20
15
15
• Lending to Government has continued to 10 10
decline in line with fiscal consolidation 5
0
5
0
efforts (Chart 7). In addition, tight money -5 -5
market liquidity contributed to the -10 -10

Mar-21
Dec-18

Dec-19

Dec-20

Dec-21

Dec-22

Dec-23
Jun-19

Jun-20

Jun-21

Jun-22

Jun-23
Mar-19
Sep-19
Mar-20
Sep-20

Sep-21
Mar-22
Sep-22
Mar-23
Sep-23
Mar-24
reduction in the accumulation of
Government securities by commercial Gross Claims on Central Government

banks. Private Sector

Gross Domestic Credit Growth Rate (RHS)
Exchange Rate Adjusted Domestic Credit

12
 ECONOMIC ACTIVITY
• Economic activity reduced in the first quarter Chart 8: Real GDP Growth – Actual and Projected (percent)
due to the escalation of inflationary pressures
induced by a weaker exchange rate and the 8
drought, which weighed on output for firms
especially, in manufacturing and agriculture 6
sectors.
4

• Growth prospects for 2024 are not as bright with 2

growth significantly downgraded to 2.3 percent
from the earlier projection of 4.4 percent on 0
account of the expected impact of the current
drought, with agriculture and energy (electricity -2
supply) being the most adversely affected sectors -4
(Chart 8).

2024f

2025f

2026f
2023p
2020
2015

2016

2017

2018

2019

2021

2022
• Growth is expected to rebound in 2025,
attributed to the recovery in mining and Bank of Zambia - April- 2024 (QPM)
agriculture sectors, and sustained expansion of MoFNP - April 2024
FocusEconomics - March 2024
ICT, financial and insurance, as well as wholesale IMF WEO April 2024
and retail trade sectors. Actual Real GDP growth

13
 CONCLUSION
• The MPC decided to raise the Monetary Policy Rate by 100 basis points to 13.5 percent
to augment earlier actions aimed at steering inflation towards the 6-8 percent target
band and anchor inflation expectations.

• The Committee noted that the current drought has led to a significant downgrade of
domestic growth forecast for 2024 with agriculture and energy (electricity supply)
being the most adversely affected sectors.

• However, uncontrolled inflation and failure to address persistent inflationary

pressures will undermine macroeconomic stability and all other efforts being taken to
address the current economic shocks the country faces, maintaining financial stability,
and creating an environment that promotes productive lines of investment.

5/15/2024 14
THANK YOU FOR YOUR
ATTENTION.

GOD BLESS…

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