EVOLUTION OF MONETARY, EXCHANGE AND INFLATION
RATE CONTROL POLICIES IN ZAMBIA.
HISTORICAL ANALYSIS AND FUTURE STRATEGIES
Daniel Chiluba Nkole
TABLE OF CONTENTS
1.0.
Background .........................................................................................................
4
2.0.
Executive Summary ............................................................................................
5
3.0.
Monetary Policy ...................................................................................................
6
4.0.
Types of Inflation .................................................................................................
6
5.0.
Research Methodology .......................................................................................
7
6.0.
Monthly Monetary Policy, Inflation and Average Exchange Rate - Year 2017
8
6.1. 2017 Inflation Rates Trend .............................................................................
9
6.2. 2017 Monetary Policy Rates Trend ................................................................
9
6.3. 2017 Average Exchange Rates Trend............................................................
9
6.4. 2017 Overview ...............................................................................................
9
7.0.
Monthly Monetary Policy, Inflation and Average Exchange Rate - Year 2018 10
7.1. 2018 Inflation Rates Trend ............................................................................. 11
7.2. 2018 Monetary Policy Rates Trend ................................................................ 11
7.3. 2018 Average Exchange Rates Trend............................................................ 11
7.4. 2018 Overview ............................................................................................... 11
8.0.
Monthly Monetary Policy, Inflation and Average Exchange Rate - Year 2019 12
8.1. 2019 Inflation Rates Trend ............................................................................. 13
8.2. 2019 Monetary Policy Rates Trend ................................................................ 13
8.3. 2019 Average Exchange Rates Trend............................................................ 13
8.4. 2019 Overview ............................................................................................... 13
9.0.
Monthly Monetary Policy, Inflation and Average Exchange Rate - Year 2020 14
9.1. 2020 Inflation Rates Trend ............................................................................. 15
9.2. 2020 Monetary Policy Rates Trend ................................................................ 15
9.3. 2020 Average Exchange Rates Trend............................................................ 15
9.4. 2020 Overview ............................................................................................... 15
10.0. Monthly Monetary Policy, Inflation and Average Exchange Rate - Year 2021 16
10.1. 2021 Inflation Rates Trend ........................................................................... 17
10.2. 2021 Monetary Policy Rates Trend .............................................................. 17
10.3. 2021 Average Exchange Rates Trend .......................................................... 17
10.4. 2021 Overview.............................................................................................. 17
11.0. Monthly Monetary Policy, Inflation and Average Exchange Rate - Year 2022 18
11.1. 2022 Inflation Rates Trend ........................................................................... 19
11.2. 2022 Monetary Policy Rates Trend .............................................................. 19
11.3. 2022 Average Exchange Rates Trend .......................................................... 19
11.4. 2022 Overview.............................................................................................. 19
12.0. Monthly Monetary Policy, Inflation and Average Exchange Rate - Year 2023 20
12.1. 2023 Inflation Rates Trend ........................................................................... 21
12.2. 2023 Monetary Policy Rates Trend .............................................................. 21
12.3. 2023 Average Exchange Rates Trend.......................................................... 21
12.4. 2023 Overview.............................................................................................. 21
13.0. Monthly Monetary Policy, Inflation and Average Exchange Rate - Year 2024 22
13.1. 2024 Inflation Rates Trend ........................................................................... 23
13.2. 2024 Monetary Policy Rates Trend .............................................................. 23
13.3. 2024 Average Exchange Rates Trend .......................................................... 23
13.4. 2024 Overview.............................................................................................. 23
14.0. Relationship Analysis ......................................................................................... 24
14.1. Inflation and Monetary Policy ....................................................................... 24
14.2. Exchange Rates and Monetary Policy .......................................................... 25
14.3. Exchange Rates and Inflation ....................................................................... 25
15.0. Recommendation ................................................................................................ 25
16.0. Conclusion ........................................................................................................... 28
1.0.
Background
In the early years following independence in 1964, Zambia, like many other newly liberated
African nations, implemented various economic policies, including price controls, to foster
economic development and social stability. Price controls were intended to curb inflationary
pressures and ensure affordability of essential goods for the population.
However, the efficacy of these price control measures was limited, and they often led to
unintended consequences such as distortions in markets, shortages of goods, and
disincentives for production and investment. Despite the initial intentions, the price controls
became increasingly unsustainable and failed to address the underlying economic challenges
facing the country.
As the economy continued to grapple with inflationary pressures and stagnant growth, the
authorities recognized the need for a more comprehensive overhaul of economic policies.
This realization culminated in the radical liberalization reforms of the early 1990s, which
marked a decisive departure from the previous interventionist approach. One of the significant
steps taken during this period was the abandonment of all exchange controls, making Zambia
the first African economy to do so. This move was part of a broader strategy to signal a break
with past economic paradigms and embrace market-oriented principles. By opening up the
capital account and dismantling barriers to international trade and investment, Zambia aimed
to unleash economic dynamism and attract much-needed foreign capital and expertise.
However, while the liberalization measures brought about some benefits such as increased
foreign investment and access to global markets, they also introduced new challenges. The
removal of exchange controls, in particular, exposed the Zambian economy to external
shocks and volatility in international capital flows. Additionally, the liberalization agenda faced
resistance from certain quarters, especially those who were accustomed to the old regime of
price controls and government intervention.
Against this backdrop, the review scrutinizes the historical trajectory of Zambia's economic
policies, including the transition from price controls to liberalization, and evaluates the
implications for monetary and exchange rate policies in the 21st century. It recognizes the
importance of learning from past experiences while charting a course for the future that
balances the imperatives of stability, growth, and resilience in the face of global economic
uncertainties.
2.0.
Executive Summary
On May 13-14, 2024, the Monetary Policy Committee (MPC) raised the Policy Rate by 100
basis points to 13.5 percent. The move aimed at steering inflation towards the 6-8 percent
target band and helping anchor inflation expectations. In arriving at the decision, the
Committee communicated through its statement that it observed that inflationary pressures
had persisted and inflation was projected to remain above the target band over the forecast
horizon. Therefore, if unchecked, it could become anchored above the target band making it
harder to achieve macroeconomic stability.
Accordingly, the Committee resolved that a stronger policy response was warranted. The
Committee also considered the stability of the financial sector and the importance of robust
growth over the medium-to long term. The main questions that beg answers are, has the
measure to adjust the MPC rate addressed the Inflation upward risk? Why the inflationary
rise when there is belief that “Excess Money” has been mopped off the economy. If not,
then why and what should be done?
This analysis focuses on the relationship between monetary policy, inflation rates, and
exchange rates in Zambia from 2017 to 2024, highlighting key trends and their implications
for the economy.
The Bank of Zambia adjusts its monetary policy rates to manage inflation. When rates were
increased, borrowing costs rose, aiming to reduce spending and curb inflation.
Exchange rates fluctuated significantly, influenced by monetary policy adjustments and
external economic conditions, impacting purchasing power and inflation rates indirectly.
There was a direct relationship noted between monetary policy adjustments and
inflation rates, contrary to an inverse relationship expectation. Economic challenges like
stagflation (high inflation and stagnant growth) were observed during periods of significant
inflationary pressures. Inflation types observed includes demand-pull, cost-push, and
hyperinflation, influenced by both internal economic factors and external trade dynamics.
Challenges identified includes limited market access for agricultural products due to poor
infrastructure, high post-harvest losses, and knowledge gaps in modern farming practices.
Recommendations focused on enhancing agricultural productivity through collateral
management, improved storage facilities, reducing post-harvest losses, bridging knowledge
gaps, and providing consistent farming incentives.
Economic growth, particularly in the agriculture sector, is emphasized as pivotal for
sustainable
inflation
management.
Effective
implementation
of
policies
targeting
infrastructure development and agricultural productivity is crucial for achieving stable
economic growth and reducing inflationary pressures in Zambia.
The effectiveness of monetary policy in curbing inflation must be complemented by
broader economic strategies aimed at fostering growth in industrialization while
considering the market for the goods and services produced, reducing production
costs, enhancing complementary goods and enhancing market access for
agricultural produce.
Continued monitoring and adaptation of monetary and fiscal policies will be essential to
navigate economic challenges and sustain growth in Zambia's small, yet resource-rich
economy. This summary underscores the interconnectedness of monetary policy, inflation
dynamics, and broader economic development strategies essential for achieving long-term
stability and growth in Zambia.
3.0.
Monetary Policy
Monetary policy refers to the measures or actions taken by the monetary authority of the
country (the Bank of Zambia in this case) to alter the quantity, availability and cost of money
or credit in the economy. When the monetary policy rate is adjusted upwards, the view is to
reduce the available funds to spend in the economy. How does this happen? When the policy
rate is adjusted upwards, it affects the borrowing interest rates given by commercial banks.
This is assumed that it reduces the appetite of borrowing.
4.0.
Types of Inflation
There are several types of inflation which include the following:
▪
Demand-Pull Inflation: Occurs when aggregate demand exceeds the available
supply of goods and services, leading to higher prices.
▪
Cost-Push Inflation: Results from an increase in production costs, such as higher
wages or raw materials costs, which leads to higher prices.
▪
Built-In Inflation: Occurs when people expect prices to rise in the future, leading to a
self-fulfilling prophecy.
▪
Hyperinflation: An extreme and rapid increase in prices, often caused by monetary
policy mistakes or political instability.
▪
Stagflation: A combination of high inflation and stagnant economic growth, often
accompanied by high unemployment.
▪
Creeping Inflation: A slow and gradual increase in prices over time.
▪
Galloping Inflation: A rapid and sudden increase in prices.
▪
Asset Price Inflation: An increase in the prices of assets such as housing, stocks, or
bonds.
▪
Wage-Price Inflation: An increase in wages and prices, leading to a vicious cycle of
inflation.
▪
Import-Export Inflation: An increase in prices due to changes in international trade
and exchange rates.
These types of inflation will have different causes and effects on the economy, and
understanding them is important for developing effective monetary and fiscal policies.
5.0.
Research Methodology
In order to analyze the relationship between the Bank of Zambia (BoZ) Monetary Policy,
Inflation and average Exchange Rate in the Zambia. The applicable monthly BoZ Monetary
Policy, Inflation and the average Exchange Rate driven from daily exchange rates was
obtained and analyzed for the period January 2017 to May 2024.
6.0.
Monthly Monetary Policy, Inflation and Average Exchange Rate - Year 2017
Period
Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17
Inflation Rate
7% -3% -1% 0% -3% 5% -3% -5% 5% -3% -2% -3%
Monetary Policy
0% -10% 0% 0% -11% 0% 0% -12% 0% 0% -7% 0%
Average Exchange Rate -1% -2% 7% -9% -2% 0% -4% 1% 4% 4% 3% 0%
6.1.
2017 Inflation Rates Trend
The inflation rate fluctuated with a downward trend over the period, ranging from
6.10% to 7.00%. Overall, there was a moderate level of inflation during this time
frame with an increase in Jun and Sep of that year.
6.2.
2017 Monetary Policy Rates Trend
Monetary policy rates also varied, with a downward trend from 15.50% to
10.25%. There was a gradual easing of monetary policy over the period, with a
direct relationship with inflation rate.
6.3.
2017 Average Exchange Rates Trend
Exchange rates fluctuated in the period with an upward trend at the end of the
year, the highest depreciation of ZMW 10.39 to a dollar representing 7%
increase in March 2017 and highest appreciation of ZMW 9.44 to a dollar
representing 9% in April 2017.
6.4.
2017 Overview
Overall the inflation rate reduced by -13% (6.10% - 7%)/7%, while the monetary
policy reduced by -34% (10.25%-15.50%)/15.50%, and the currency rate
depreciated by (1%) from ZMW 9.91 to ZMW 10.00 per US dollar. There was a
direct relationship between inflation and monetary policy in 2017.
7.0.
Monthly Monetary Policy, Inflation and Average Exchange Rate - Year 2018
Period
Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18
Inflation Rate
6.20% 6.10% 7.10% 7.40% 7.80% 7.40% 7.80% 8.10% 7.90% 8.30% 7.80% 7.90%
Monetary Policy
10.25% 9.75% 9.75% 9.75% 9.75% 9.75% 9.75% 9.75% 9.75% 9.75% 9.75% 9.75%
Average Exchange Rate 9.83 9.77 9.56 9.50 10.07 10.02 9.86 10.07 10.93 11.89 11.82 11.89
Period
Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18
Inflation Rate
-2% -2% 16% 4% 5% -5% 5% 4% -2% 5% -6% 1%
Monetary Policy
0% -5% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
Average Exchange Rate 2% -1% -2% -1% 6% 0% -2% 2% 9% 9% -1% 1%
7.1.
2018 Inflation Rates Trend
The inflation rate fluctuated throughout the year, ranging from a low of 6.10%
in February to a high of 8.30% in October. Overall, there was volatility in
inflation, with some months experiencing higher rates than others. The inflation
rates show an upward trend for the year 2018. There was a sharp increase in
inflation from March to May, followed by a gradual decline towards the end of
the year.
7.2.
2018 Monetary Policy Rates Trend
The monetary policy rate remained unchanged at 9.75% throughout the entire
year after adjustment downwards from 10.25% in January 2018.
Despite the volatility in inflation rates, the central bank did not alter its monetary
policy stance, with presumed strategic decision to prioritize other economic
objectives and maintain stability in the financial markets.
7.3.
2018 Average Exchange Rates Trend
Exchange rates also fluctuated during the year. There was a significant
increase in the average exchange rate from September to October, followed by
a slight decrease in November.
7.4.
2018 Overview
Overall the inflation rate increased by 27% (7.90%-6.20%)/6.20%, while
monetary policy also reduced by -5% (9.75%-10.25%)/10.25%, and the
currency rate depreciated by (21%) from ZMW 9.83 to ZMW 11.89 per US
dollar.
8.0.
Monthly Monetary Policy, Inflation and Average Exchange Rate - Year 2019
Period
Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19
Inflation Rate
7.90% 7.80% 7.50% 7.70% 8.10% 8.60% 8.80% 9.30% 10.50% 10.70% 10.80% 11.70%
Monetary Policy
9.75% 9.75% 9.75% 9.75% 10.25% 10.25% 10.25% 10.25% 10.25% 10.25% 11.50% 11.50%
Average Exchange Rate 11.91 11.89 12.01 12.28 13.23 13.04 12.72 13.01 13.11 13.15 13.95 14.35
Period
Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19
Inflation Rate
0% -1% -4%
3%
5%
6%
2%
6% 13%
2%
1%
8%
Monetary Policy
0%
0%
0%
0%
5%
0%
0%
0%
0%
0% 12%
0%
Average Exchange Rate
0%
0%
1%
2%
8% -1% -2%
2%
1%
0%
6%
3%
8.1.
2019 Inflation Rates Trend
The inflation rate exhibited an upward trend throughout the year, starting at
7.90% in January and reaching 11.70% by December. This was as a result of
persistent increase in the general price level over the course of the year.
Notably, there were months with particularly high inflation rates, such as
September, October, and November, where inflation surpassed 10.50%.
8.2.
2019 Monetary Policy Rates Trend
The monetary policy rate remained unchanged at 9.75% from January to May.
However, in June, the rate was increased to 10.25%, and further raised to
11.50% in November and December. The decision to increase the monetary
policy rate in June and subsequent months was a response to the rising
inflationary pressures observed during the year by the central bank.
8.3.
2019 Average Exchange Rates Trend
Exchange rates fluctuated during the year, with an overall increasing trend. The
average exchange rate started at ZMW 11.91 in January and rose to ZMW
14.35 by December.
Notably, there were significant fluctuations in exchange rates, particularly from
May to December, where the rate increased rapidly.
8.4.
2019 Overview
Overall the inflation rate increased by 48% (11.70%-7.90%)/7.90%, while
monetary policy also increased by 18% (11.50%-9.75%)/9.75%, and the
currency rate depreciated by (21%) from ZMW 11.91 to ZMW 14.35 per US
dollar.
9.0.
Monthly Monetary Policy, Inflation and Average Exchange Rate - Year 2020
Period
Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20
Inflation Rate
-7% 11% 1% 12% 6% -4% -1% -2% 1% 2% 9% 10%
Monetary Policy
0% 0% 0% 0% -20% 0% 0% -14% 0% 0% 0% 0%
Average Exchange Rate
0% 2% 12% 13% -2% 0% 0% 3% 6% 2% 3% 1%
9.1.
2020 Inflation Rates Trend
The inflation rate experienced a significant increase throughout the year,
starting at 12.50% in January and reaching a high of 19.20% by December. The
year 2020 also experienced a persistent rise in the general price level over the
course of the year. Notably, there were months with exceptionally high inflation
rates, such as November and December, where inflation surpassed 17.40%
and 19.20%, respectively.
9.2.
2020 Monetary Policy Rates Trend
The monetary policy rate remained unchanged at 11.50% from January to April.
However, in May, the rate was reduced to 9.25%, and further decreased to 8%
from August to December.
The decision to decrease the monetary policy rate starting in May was a
response by the central bank to the rising inflationary pressures observed
during the year, aiming to stimulate economic activity and manage inflation.
9.3.
2020 Average Exchange Rates Trend
Exchange rates fluctuated significantly during the year, with an overall
increasing trend. The average exchange rate started at ZMW 14.39 in January
and rose to ZMW 21.06 by December. Notably, there were sharp increases in
exchange rates from March to April, followed by relatively stable rates from
June to August, and another significant increase from September to December.
9.4.
2020 Overview
Overall the inflation rate increased by 54% (19.20%-12.50%)/12.50%, while
monetary policy reduced by -30% (8.00%-11.50%)/11.50%, and the currency
rate depreciated by (46%) from ZMW 14.39 to ZMW 21.06 per US dollar.
10.0. Monthly Monetary Policy, Inflation and Average Exchange Rate - Year 2021
Period
Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21 Aug-21 Sep-21 Oct-21 Nov-21 Dec-21
Inflation Rate
21.50% 22.20% 22.80% 22.70% 23.20% 24.60% 24.60% 24.40% 22.10% 21.10% 19.30% 16.40%
Monetary Policy
8.00% 8.50% 8.50% 8.50% 8.50% 8.50% 8.50% 8.50% 8.50% 8.50% 9.00% 9.00%
Average Exchange Rate 21.27 21.56 21.96 22.19 22.41 22.56 21.60 18.04 16.35 17.01 17.52 16.76
Period
Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21 Aug-21 Sep-21 Oct-21 Nov-21 Dec-21
Inflation Rate
-12% 3% 3% 0% 2% 6% 0% -1% -9% -5% -9% -15%
Monetary Policy
0% 6% 0% 0% 0% 0% 0% 0% 0% 0% 6% 0%
Average Exchange Rate -1% 1% 2% 1% 1% 1% -4% -16% -9% 4% 3% -4%
10.1. 2021 Inflation Rates Trend
The inflation rate experienced significant fluctuations throughout the year,
starting at 21.50% in January and declining to 16.40% by December. This
indicates a period of high inflation, albeit with a decreasing trend towards the
end of the year. Notably, there were months with exceptionally high inflation
rates, such as March and April, where inflation surpassed 22.80% and 22.70%,
respectively. However, inflation gradually decreased in the latter part of the
year.
10.2. 2021 Monetary Policy Rates Trend
The monetary policy rate remained unchanged at 8.00% from January to May.
However, in June, the rate was increased to 8.50%, where it remained until
October. In November and December, the rate was further increased to 9.00%.
The decision to increase the monetary policy rate starting in June was a
response by the central bank to the persistent inflationary pressures observed
during the year, aiming to curb inflation and stabilize the economy.
10.3. 2021 Average Exchange Rates Trend
Exchange rates fluctuated during the year, with an overall increasing trend
followed by a decline towards the end of the year. The average exchange rate
started at ZMW 21.27 in January, peaked at ZMW 22.56 in June, and then
declined to ZMW 16.76 by December. Notably, there were sharp increases in
exchange rates from January to June, followed by a significant decrease from
July to December.
10.4. 2021 Overview
Overall the inflation rate reduced by -24% (16.40%-21.50%)/21.50%, while
monetary policy increased by 13% (9.00%-8.00%)/8.00%, and the currency
rate appreciated by (21%) from ZMW 21.27 to ZMW 16.76 per US dollar.
11.0. Monthly Monetary Policy, Inflation and Average Exchange Rate - Year 2022
Period
Jan-22 Feb-22 Mar-22 Apr-22 May-22 Jun-22 Jul-22 Aug-22 Sep-22 Oct-22 Nov-22 Dec-22
Inflation Rate
15.10% 14.20% 13.10% 11.50% 10.20% 9.70% 9.90% 9.80% 9.90% 9.70% 9.80% 9.90%
Monetary Policy
9.00% 9.00% 9.00% 9.00% 9.00% 9.00% 9.00% 9.00% 9.00% 9.00% 9.00% 9.00%
Average Exchange Rate 17.24 18.07 17.91 17.37 17.06 16.99 16.40 16.05 15.60 15.90 16.52 17.56
Period
Jan-22 Feb-22 Mar-22 Apr-22 May-22 Jun-22 Jul-22 Aug-22 Sep-22 Oct-22 Nov-22 Dec-22
Inflation Rate
8% -6% -8% -12% -11% -5% 2% -1% 1% -2% 1% 1%
Monetary Policy
0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
Average Exchange Rate -3% 5% -1% -3% -2% 0% -3% -2% -3% 2% 4% 6%
11.1. 2022 Inflation Rates Trend
The inflation rate exhibited a decreasing trend throughout the year, starting at
15.10% in January and declining to 9.90% by December. This period of
declining inflation, had some level of stabilization in the general price level.
Notably, there were significant decreases in inflation rates from January to
March, followed by relatively stable rates from April to December.
11.2. 2022 Monetary Policy Rates Trend
The monetary policy rate remained unchanged at 9.00% throughout the entire
year. There was a consistent stance by the central bank regarding interest
rates, without any adjustments to combat fluctuations in inflation. With the
decreasing trend in inflation rates, the central bank maintained a steady
monetary policy stance, which indicated a confidence in the effectiveness of
existing policy measures or a desire to avoid disrupting economic stability.
11.3. 2022 Average Exchange Rates Trend
Exchange rates fluctuated during the year, with no clear trend. However, there
are noticeable changes in exchange rates from month to month.
11.4. 2022 Overview
Overall the inflation rate reduced by -13% (6.10%-7%)/7%, while monetary
policy reduced by -34% (10.25%-15.50%)/15.50%, and the currency rate
depreciated by (1%) from ZMW 9.91 to ZMW 10.00 per US dollar.
12.0. Monthly Monetary Policy, Inflation and Average Exchange Rate - Year 2023
Period
Jan-23 Feb-23 Mar-23 Apr-23 May-23 Jun-23 Jul-23 Aug-23 Sep-23 Oct-23 Nov-23 Dec-23
Inflation Rate
9.40% 9.60% 9.90% 10.20% 9.90% 9.80% 10.30% 10.80% 12.00% 12.60% 12.90% 13.10%
Monetary Policy
9.00% 9.25% 9.25% 9.25% 9.50% 9.50% 9.50% 10.00% 10.00% 10.00% 11.00% 11.00%
Average Exchange Rate 18.50 19.38 20.61 18.43 18.56 18.69 18.64 19.44 20.76 21.50 22.96 24.73
Period
Jan-23 Feb-23 Mar-23 Apr-23 May-23 Jun-23 Jul-23 Aug-23 Sep-23 Oct-23 Nov-23 Dec-23
Inflation Rate
5% 2% 3% 3% -3% -1% 5% 5% 11% 5% 2% 2%
Monetary Policy
0% 3% 0% 0% 3% 0% 0% 5% 0% 0% 10% 0%
Average Exchange Rate -5% 5% 6% -11% 1% 1% 0% 4% 7% 4% 7% 8%
12.1. 2023 Inflation Rates Trend
The inflation rate exhibited fluctuations throughout the year, with some months
experiencing increases and others decreases. Overall, there was an upward
trend in inflation rates, starting at 9.40% in January and rising to 13.10% by
December. Notably, there were months with particularly high inflation rates,
such as December, where inflation reached 13.10%.
12.2. 2023 Monetary Policy Rates Trend
The monetary policy rate varied during the year, starting at 9.00% in January
and increasing gradually to 11.00% by December. There was tightening of
monetary policy over the course of the year in response to increasing
inflationary pressures. The decision to raise the monetary policy rate reflects
the central bank's efforts to curb inflation and stabilize the economy, indicating
a proactive approach to managing monetary policy.
12.3. 2023 Average Exchange Rates Trend
Exchange rates fluctuated during the year, with noticeable changes from month
to month.
12.4. 2023 Overview
Overall the inflation rate increased by 39% (13.10%-9.40%)/9.40%, also the
monetary policy increased by 22% (11.00%-9.00%)/9.00%, and the currency
rate depreciated by (34%) from ZMW 18.50 to ZMW 24.73 per US dollar.
13.0. Monthly Monetary Policy, Inflation and Average Exchange Rate - Year 2024
Period
Inflation Rate
Monetary Policy
Average Exchange Rate
Jan-24 Feb-24 Mar-24 Apr-24 May-24
13.20% 13.50% 13.70% 13.80% 13.80%
11.00% 12.50% 12.50% 12.50% 13.50%
26.32
25.20
24.99
25.31
27.17
Period
Inflation Rate
Monetary Policy
Average Exchange Rate
Jan-24 Feb-24 Mar-24
-1%
2%
1%
0%
14%
0%
-6%
-4%
-1%
Apr-24 May-24
1%
0%
0%
8%
1%
7%
13.1. 2024 Inflation Rates Trend
The inflation rate remained relatively high and stable throughout the period,
ranging from 13.20% in January to 13.80% in May. There were persistent
inflationary pressures on the economy during this period. This represents an
overall 5% increase (13.80% - 13.20%)/13.20% from the period January to May
2024.
The consistency in inflation rates suggests that underlying factors contributing
to inflation remained largely unchanged during the period. This is despite the
Monetary Policy Committee decided to raise the Monetary Policy Rate by 100
basis points from 12.5% to 13.5 percent.
13.2. 2024 Monetary Policy Rates Trend
The monetary policy rate increased gradually from January to May 2024,
starting at 11.00% in January and reaching 13.50% by May. The reasoning
behind this increase was to tighten the monetary policy over the period with the
efforts addressing the inflationary pressures by reducing liquidity in the
economy and curbing spending.
13.3. 2024 Average Exchange Rates Trend
Exchange rates fluctuated during the period, with noticeable changes from
month to month. Notably, there was a significant increase in the average
exchange rate from January to May, reaching ZMW 27.17 by May. Overall, the
data reflects a period of high and stable inflation rates, accompanied by a
tightening of monetary policy to address inflationary pressures.
13.4. 2024 Overview
Overall the inflation rate increased by 5% (13.80%-13.20%)/13.20%, while
monetary policy reduced by 23% (13.50%-11.00%)/11.00%, and the currency
rate depreciated by (3%) from ZMW 26.32 to ZMW 27.17 per US dollar.
14.0. Relationship Analysis
14.1. Inflation and Monetary Policy
There is an indication of a direct relationship between monetary policy and
inflation rate for the period under review rather than an inverse relationship.
Based on the above, it is important to understand the combination types of
Inflation that Zambia is experiencing and note the utilization of the Monetary
policy to curb inflation isn’t yielding the desired result for a growing Zambian
economy. From the analysis it can be concluded that the following types of
inflation is being experienced, Demand-Pull, Cost-Push, Hyperinflation,
Stagflation, Creeping and Import-Export Inflation, which requires a different
solution to application of an upward adjustment the monetary policy to curb the
inflationary increase.
The Demand-Pull Inflation, being a result of aggregate demand exceeding the
available supply of essential commodities. The commodities such as maize
meal shortage has led to higher prices. The short supply has also been
compounded by this year’s draught.
The Cost -Push, is emanating from the increased cost of production as a result
of high cost of raw materials and other direct production costs such as fuel used
in production lines. The electricity power load management has also
compounded the problem.
The Hyperinflation, has emerged through the implementation of the monetary
policy. It has been noted that the increase in monetary policy, has also resulted
in the increase in inflation rates for almost all of the periods under review with
countable few exceptional periods.
The Stagflation, there has been a combination of high inflation and stagnant
economic growth, which has also been accompanied by high unemployment.
This cannot be resolved by the upward adjustment of monetary policy as it
cripples the economic growth.
The Creeping, despite all the measures that have been put in place to curb the
increase in inflation rate, it must also be noted that there is a slow and gradual
increase in prices over time in the world over with Zambia not being an
exception.
The Import-Export, there is an increase in prices due to changes in
international trade especially in the oil prices and exchange rates.
14.2. Exchange Rates and Monetary Policy
Exchange rates might be influenced by changes in monetary policy rates. A
higher interest rate might attract foreign investment, leading to an appreciation
of the domestic currency.
However, the relationship between exchange rates and monetary policy isn't
straightforward. The key is for suitable ventures to attract Foreign Direct
Investment (FDI).
14.3. Exchange Rates and Inflation
Exchange rates could be influenced by inflation differentials between countries,
affecting their purchasing power parity.
Inflation rates might also influence exchange rates indirectly through their
impact on monetary policy and interest rates.
15.0. Recommendation
The utilization of the Monetary policy to influence inflation rate downwards hasn’t been
achieved in Zambia based on the analysis above. The following factors have to be considered
in the implementation of this strategy.
I.
The focus is to reduce the amount of money available in the market to spend.
II.
Upward adjustment of the rate of interest charged on new and existing facilities (loans)
acquired from commercial banking institutions.
III.
Reduce the number of defaults from borrowers on facilities to be acquired.
The intention is good but the results are opposite due to the following factors.
I.
Reduction of available funds in the economy, the Zambian Economy is a small
market. Everyone is competing for a limited market available to acquires its goods and
services. When money is mopped out of the economy, it means that the number of
customers available to acquire the existing goods and services reduce. As a supplier
who was selling 1,000 boxes of tomatoes at ZMW 200.00 per box to make a profit of
ZMW 50,000.00 after considering all my expenses which includes but not limited to
transportation costs, labour costs, agriculture chemicals and other selling costs.
Once there is a reduction of available funds in the market, the anticipation is that there
will be few customers in the economy with a lot of money to spend in order to affect
the prices going up. In as much as it is true that there will be less money in the economy
and most likely responsible spending. The effect is that to the supplier who has to sale
the 1,000 boxes of tomatoes to still make a profit of ZMW 50,000.00 which is 25%
profit margin. Has to seek alternative markets to meet the sales units or has to
increase the price in order to meet the profit required. In other words, it is solving one
problem while creating another in a small economy.
II.
Upward adjustment of the rate of interest, of course it makes borrowing expensive
but doesn’t reduce the appetite of borrowing. There is a saying that, “Bank or lending
Institutions will give you money when you don’t need it.” The appetite to borrow
will mostly be driven by need. Producers of goods and services will in many cases
need financing. This could be start up, operational or expansion capital. The cost of
borrowing has to be passed on to the end user. Once, the producer of goods and
service providers realized the increase in cost of the borrowing instruments. This
increase cost has to be factored in the cost of the goods or services being provided.
This in return pushes the prices upwards. Again, shouting the economy in the leg
rather than, “tying its arms and allowing it to walk.” Hence, the country ends up
creating a Cost-Push and possible Demand-Pull Inflation when there is reduced
production as a result of increased production costs. This eventually leads to
Hyperinflation and Stagflation.
III.
Reduce the number of defaulters, this may be the intention but the result is the
opposite. With increased borrowing cost there is increased default rate for a small
economy like Zambia. Most of the defaulters heavily rely on borrowed funds. Many
borrowers undertake refinancing options of borrowing to clearing existing loans. This
is in the hope that they will able to generate some funds later own to pay the new
acquired loan. Nevertheless, the debt book remains maintained or grows. Hence, there
is little or no opportunity to make any savings.
16.0. Conclusion
The best way to fight the growing inflation and keep it to acceptable stand is to increase the
economy. Open up emerging markets within the country. The country has great potential in
agriculture but it has remained just a topic of discussion for many years. It is all about potential
rather than actualizing this potential.
Agriculture has to be actualized as a business in additional to sustainable food security. The
major factors, loss or costs affecting the agriculture industry are as follows:
I.
Strategic Specialized Storage Facilities
II.
Post-Harvest Losses
III.
Widening Knowledge Gap
IV.
Standardized Farming Incentives
V.
Lack of Review of Historical Data and Trends
VI.
Road Networks to Access Markets
Strategic Specialized Storage Facilities
There is need for strategic specialized storage facilities designed to provide optimal storage
conditions for agricultural produce in each specific location. These will help in preserving the
quality and extending the shelf life of perishable goods. The utilization of satellite depots has
affected the conducive storage of the different agriculture produces harvested, with most of
them going to waste or being stolen.
These facilities will significantly reduce post-harvest losses by controlling factors such as
temperature, humidity, and pests, which are major contributors to spoilage. The centralized
storage facilities will also allow for the easy aggregation of produce from multiple farmers.
This aggregation will facilitate economies of scale in transportation and marketing, reducing
overall costs.
By ensuring a consistent supply of quality produce, these facilities will improve farmers'
access to markets. They enable farmers to meet the volume and quality requirements of large
buyers, including retailers and exporters. There is also a possibility of technological
Integration. Modern facilities can include technologies such as climate control systems,
automated inventory management, and tracking systems. These technologies will enhance
efficiency and traceability throughout the supply chain. Government in instances will be able
to have real-time information for decision marketing on exports and strategic food reserves.
They reduce transportation costs by acting as centralized points for aggregating produce,
especially in areas with poor road infrastructure.
Post-Harvest Losses
Post-harvest losses refer to the deterioration of agricultural produce after harvesting but
before reaching the consumer. It includes losses from spoilage, pests, and physical damage.
Post-harvest loss is one of the biggest costs in agriculture produce. These losses occur due
to inadequate storage facilities, improper handling, transportation delays, and lack of market
access. High post-harvest losses reduce farmers' incomes and profitability. It also limits food
availability and contributes to higher prices for consumers. Strategies to reduce losses
include improving storage facilities, adopting better harvesting and handling practices,
implementing pest management techniques, and enhancing transportation infrastructure.
Technologies such as cold storage, drying techniques, and packaging innovations can extend
shelf life and maintain product quality.
Widening Knowledge Gap
The widening knowledge gap refers to disparities in access to agricultural knowledge,
technologies, and practices among farmers. The factors contributing to the gap include lack
of access to education, training, information, and extension services. Smallholder farmers, in
particular, may lack awareness of modern farming techniques and market trends. Knowledge
gaps hinder productivity improvements, limit adoption of sustainable practices, and reduce
resilience to challenges such as climate change. Initiatives such as farmer training programs,
extension services, farmer field schools, and digital agriculture platforms can bridge the
knowledge gap. These initiatives provide farmers with access to information on best
practices, new technologies, and market opportunities. Digital platforms and mobile
applications can deliver agricultural information directly to farmers, even in remote areas,
thereby democratizing access to knowledge.
Standardized Farming Incentives
Standardized farming incentives refer to consistent policies and support mechanisms
provided to farmers to encourage adoption of sustainable practices and improve productivity.
The incentives may include subsidies for inputs (e.g., seeds, fertilizers), access to credit,
insurance schemes, price guarantees, and training programs. The incentives will promote
investment in agriculture, enhance farmers' income stability, and encourage adoption of
technologies that improve productivity and sustainability.
Some of the challenges include inconsistent implementation, bureaucratic delays, and
targeting issues which undermine the effectiveness of incentives. Governments should
ensure transparency, equity, and sustainability in incentive programs. Continuous evaluation
and feedback mechanisms are essential to adjust policies based on outcomes and changing
agricultural conditions.
Lack of Review of Historical Data and Trends
The lack of review of historical data and trends refers to the underutilization of past agricultural
data and climate trends for decision-making. Historical data provides insights into yield
patterns, market trends, climate variations, and pest outbreaks. It enables informed decisionmaking on crop selection, timing of planting and harvesting, and market strategies. It may be
noted that almost every four (4) years Zambia experience draught from each last one.
The main barriers include data availability, quality, and accessibility. Limited capacity for data
analysis and interpretation further restricts its use. In order to address these challenges, there
is need for support of technological solutions. These include, advances in data analytics,
remote sensing, and satellite imagery. These offer opportunities to collect and analyze
agricultural data more efficiently. Government and organizations should invest in data
collection infrastructure, promote data sharing among stakeholders, and build capacity for
data-driven decision-making in agriculture.
Road Networks to Access Markets
Road networks are critical infrastructure that connects agricultural production areas to
markets, enabling efficient transportation of produce. Poor road infrastructure has continued
to increase transportation costs, delayed delivery to markets, and limited access to inputs
and services for farmers.
There is need to improving connectivity. Investment in road construction, maintenance, and
upgrading will be essential to enhance market access for farmers. This includes both rural
roads and main transport corridors.
There will be a multiplier effect with improved road networks stimulating economic growth by
facilitating trade, attracting investments, and reducing poverty in rural areas. There is need
also for integration with other infrastructure. Road improvements should be complemented
by investments in storage facilities, cold chains, and market infrastructure to maximize
benefits for agricultural development.
Each of these factor, strategic specialized storage facilities, post-harvest losses, widening
knowledge gap, standardized farming incentives, lack of review of historical data and climate
trends, and road networks plays a critical role in shaping the agricultural sector's efficiency,
productivity, and resilience. Addressing these challenges requires coordinated efforts from
governments, private sector stakeholders, and development partners to implement targeted
interventions and policies that support sustainable agricultural development and inclusive
growth. The growth of the of the economy is what will positively contribute to the downward
trend for inflation. Utilizing the monetary policy in this small economy will not yield the required
or intended results.
17.0. References
•
https://www.fxempire.com/macro/zambia/inflation-rate
•
https://www.boz.zm/monitory-policy-decisions.htm
•
https://www.statista.com/statistics/1330818/copper-production-in-zambia/
•
https://www.boz.zm/monetary-policy.htm
•
MPC_Statement_Q1_2024.pdf (boz.zm)
•
https://www.boz.zm/MPC_Statement_Q2_2024.pdf
•
https://www.boz.zm/Governors_Media_Presentation_May_2024.pdf
Contact
:
Names
:
Daniel Chiluba Nkole
Organization
:
CEO – DASDAN Farms / Harvest University / Coresec
Contact
:
+260 977 301984
Email
:
andrenic2003@yahoo.com
:
dnkole@harvestuniversty.edu.zm