The Monetary Policy Rate (MPR) has been raised by 100 basis points to 13.5%. This was decided by the Monetary Policy Committee at its Meeting held from May 13 – 14, 2024. Continued movement of inflation away from the target band of 6-8% and persistent rise in inflation expectations are, if left unchecked, poised to undermine macroeconomic stability and efforts toward robust and sustained growth.
Average inflation rose to 13.5% in Q1 2024 from 12.9% in Q4 2023. In April, annual inflation increased to 13.8% from 13.7% in March. The underlying factors have largely been persistent depreciation of the Kwacha against major currencies as rising prices of food (maize grain, maize products, and vegetables) and energy (fuel).
For 2024, inflation is now projected at 13.7% from 12.9% 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 (6-8%) in 2024. A weaker Kwacha, rising prices of maize grain and fuel, geo-political tensions, and prolonged tight global financial conditions remain key upside risks to the inflation outlook.
In 2025, inflation will average 9.8 % from 9.9% while in Q1 2026, it will average 7.4%. 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.
In Q1 2024, the rate of depreciation of the Kwacha against the US dollar moderated to 10.6% from 17.5% in Q4 2023. Pressure on the Kwacha to depreciate at a faster pace has re-emerged in Q2 with the exchange rate depreciating by 10.2% to K27.37 as at May 10, 2024.
The Kwacha, however, appreciated by 7.8% to K25.24 during May 10 – 14 due to improved supply, especially by foreign financial institutions, and positive sentiments following news of progression in external debt restructuring (circulation of Eurobond Consent Solicitation).
To moderate volatility and broadly support the importation of critical commodities, the Bank provided market support of US$369 million. Notwithstanding market support, gross international reserves increased to US$3.6 billion (equivalent to 3.9 months of import cover) at end-March 2024 from US$3.3 billion (3.7months of import cover) at end-December 2023. This was mainly attributed to net statutory reserves.
Growth prospects for 2024 are not as bright with growth significantly downgraded to 2.3% from earlier projection of 4.4% on account of the expected impact of the current drought, with agriculture and energy (electricity supply) being the most adversely affected sectors. Growth is expected to rebound in 2025, attributed to the recovery in mining and agriculture sectors, and sustained expansion of ICT, financial and insurance, as well as wholesale and retail trade sectors.
Decisions of the Policy Rate will continue to be guided by inflation outcomes, forecasts, and identified risks, including those associated with financial stability. The Bank stands ready to take appropriate action should inflation persist above the 6-8% target band.