Zambia's central bank lowered its policy rate by 75 basis points to 13.50%, marking a second consecutive cut and a larger move than analysts expected.

The decision reflects easing inflationary pressure at the start of the year. Annual inflation fell below 10% in January, raising expectations that it could return to the official 6% to 8% target range in the second quarter.

Policymakers cited appreciation of the kwacha and foreign-currency inflows from the mining sector as key drivers of the decline. Improved agricultural conditions also supported food supply and price stability.

The central bank revised its outlook, projecting average inflation below 7% in 2026, with further moderation in 2027.

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The rate cut follows years of high inflation linked to currency depreciation, fiscal pressure and external debt stress. Zambia defaulted on its external debt in 2020 and has since been restructuring obligations with bilateral and private creditors.

The government is seeking a new programme with the International Monetary Fund and aims to reach a staff-level agreement in the coming months.

Key Takeaways

Zambia's monetary easing signals confidence that disinflation is becoming entrenched. Lower inflation reduces pressure on borrowing costs and supports credit growth in an economy dependent on mining exports. Copper remains the main source of foreign exchange. Strong global demand and stable output have supported the kwacha. A stable currency reduces imported inflation and strengthens reserves. However, risks remain. Zambia's debt restructuring process is ongoing, and fiscal consolidation remains central to maintaining macro stability. A renewed IMF programme would provide policy credibility and access to concessional financing. If inflation returns to the 6% to 8% target range, the central bank may continue gradual easing. The balance will depend on exchange-rate stability, commodity prices and progress in fiscal reforms.