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The Bank of Zambia surprised markets on Wednesday by reducing its benchmark interest rate by 25 basis points to 13.25 per cent.
This decision marks the third consecutive rate cut by the central bank, defying expectations from economists who had largely predicted that borrowing costs would remain steady.
Governor Denny Kalyalya attributed the move to a positive domestic outlook, specifically citing a strong maize harvest and the recent stability of the kwacha against major currencies.
Domestic price pressures have eased significantly, with inflation cooling for four straight months.
In April, the annual inflation rate dropped to 6.8 per cent, successfully sitting within the bank’s preferred target range of 6 per cent to 8 per cent.
Projections suggest this downward trend will continue, with the central bank forecasting that inflation will average 6.8% throughout 2026 before dipping further to 6.1 per cent next year.
Despite the optimistic domestic data, the bank opted for a smaller reduction than in previous months due to growing global volatility.
Governor Kalyalya noted that the ongoing conflict involving the United States, Israel, and Iran poses significant “upside risks” to energy prices.
To help shield the economy from these external shocks, the government has already implemented a temporary suspension of certain fuel taxes, aimed at protecting households and businesses from rising costs.
