By Nicholas Bariyo
Zambia’s central bank left interest rates unchanged at 9% for the second consecutive year on Wednesday, citing easing inflationary pressures on Africa’s second-largest copper and cobalt producer.
Zambia’s recovering currency, helped by improved copper prices and high food production, has helped slow inflation to 14.1% in the first quarter of 2022 from 18.6% in the previous quarter, said central bank governor Denny Kalyalya.
“It was reasonable for us to keep the policy rate on hold due to the sharp drop in inflation, which could trend towards 6-8% towards the end of the year,” Mr. Kalyalya said.
He said Zambia’s economy continues to recover from pandemic-related disruptions and could grow 3.5% this year compared to 3.3% last year, but warned that Russia’s invasion of Ukraine poses downside risks.
Zambia, which became Africa’s first pandemic-era sovereign debtor in 2020, got a boost late last year after securing a three-year $1.4 billion expanded credit line with the International Monetary Fund. China, which holds nearly $6 billion of Zambia’s $17 billion external debt, has agreed to join the heavily indebted nation’s creditors’ committee, while Lusaka pushes for a final debt restructuring to ease its debt burden.
Since President Hakainde Hichilema won the presidential election last August, he has introduced investor-friendly reforms to attract more investment to the country. As part of an effort to restart copper production from the current 800,000 tonnes to 3 million tonnes in a decade, Zambia said last week it had entered a legal battle with London-listed Vedanta Resources Ltd. over ownership of the Konkola copper mines.
Economists believe Zambia’s copper industry is on the verge of recovery as Mr Hichilema pushes ahead with his reform agenda.
“Copper production suffered from the continued ripple-through effects of punitive policies, but remedial action creates a brighter future for the domestic copper industry,” said Irmgard Erasmus, analyst at Oxford Africa Economics.
Zambia is hoping to keep increasing copper production each year to benefit from higher metal prices as the Russian war in Ukraine continues to disrupt commodity markets amid a global energy transition. Concerns over China’s Covid-19 lockdowns have weighed on copper prices in recent weeks, but traders expect the industrial metal’s price to recover in the coming months amid booming electric vehicle manufacturing.
Write to Nicholas Bariyo at [email protected]