ZAMBIA’S central bank raised its benchmark lending rate to a record 15.5 percent on Tuesday to curb soaring inflation which nearly doubled last month as the currency of the African copper producer weakened sharply.
The rate hike, the first since November 2014, also came after a steep fall by Zambia’s kwacha brought on by tumbling copper prices as the consumption in top copper consumer China slowed along with its economy.
The southern African nation had kept the key rate unchanged at 12.5 percent in August, saying it predicted inflation would breach the regulator’s 7 percent target by year end.
“Keeping inflation expectations anchored in single digits is critical,” Central Bank Governor Denny Kalyalya said.
But consumer prices rose to 14.3 percent from 7.7 percent in September, as Zambia’s currency weakened.
The central bank also lifted the cap restricting commercial bank lending rates to a maximum 24.5 percent to allow better functioning of the credit market, Kalyalya said.
The Zambian kwacha firmed 1.36 percent to 12.41 after the rate hike but later traded up 0.56 percent at 12.5000.
“This should allow the kwacha to at least stabilise,” Standard Chartered Bank Africa economist Razia Khan said.
“A more significant reversal of recent losses would require some turnaround in copper prices and much higher interbank rates.”