Zambia increases interest rate, others hold steady

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Harare – Many African central banks are maintaining their interest rates, though Zambia last week adjusted the benchmark to accommodate inflationary pressures.

On February 16, the Monetary Policy Committee (MPC) of the Bank of Zambia upped the interest rate by 50 points to 8,5 percent. According to the committee the move was necessitated by the escalation in inflationary pressures, which are pushing inflation further away from the upper bound of six to eight percent.

“The decision balances the need to contain rising inflation and anchor inflation expectations against the efforts made to support financial system stability and growth .Ensuring that inflation remains well anchored in the medium –term is essential to moderate fragilities in the financial sector and support recovery,” said the committee.

On the same day, the Bank of Namibia’s Monetary Policy Committee held its bi-monthly meeting and agreed to keep the repo rate unchanged at 3,75 percent.

The MPC said the 3,75 percent repo rate remained appropriate to support domestic economic activity and safeguard the official 1:1 peg between the Namibian dollar and the South African rand.

The committee also said as at January 31, 2021, the stock of international reserves stood at N$34,4 billion compared to N$29,9 billion a month prior. The increase in reserves was mainly due to better receipts from the Southern African Customs Union.

The South African Reserve Bank left its benchmark repo rate unchanged at a record low of 3,5 percent during its January 2021 meeting, as widely expected.

The decision was not unanimous and follows 300 bps rate cuts in 2020 to support an economy already in recession before the pandemic shock.

Policymakers said that both the risks to the growth outlook and the inflation outlook are assessed to be balanced, adding that the slow economic recovery will help keep inflation below the midpoint of the target range for this year and next.

The Bank of Botswana also left its benchmark interest rate also unchanged at 3,75 percent during its regular December 2020 meeting, after slashing it by 50 bps in October.

The decision is meant to continue supporting the economy amid the impact of the global pandemic and comes against a backdrop of low inflationary pressures and modest demand.

The Reserve Bank of Malawi left its benchmark policy rate unchanged at a record low of 12 percent at its January 2021 meeting. The decision is aimed to contain the impending inflationary pressures whilst at the same time providing space for supporting recovery of the economy in the wake of the second-wave of the COVID-19 pandemic.

The committee also mentioned that the decision will allow the impact of the November 2020 policy rate reduction to transmit and permeate through the economy.

Mozambique's central bank raised its benchmark MIMO interest rate by 300 bps to 13,25 percent during its January 2021 meeting, bringing borrowing costs to the highest since July of 2019. The decision is aimed to address rising inflationary pressures as a result of the accelerated spread of COVID-19, the occurrence of natural calamities and disruptions associated with military instability.

According to the Bank of Mozambique, the country's economic recovery in 2021 is expected to be slower than previously anticipated, linked to the reinforcement of restrictive measures amid the acceleration of the pandemic, especially in the tourism sector. The adverse effect of military conflicts in the northern zone and its impact on natural gas projects alongside climate also weighed negatively on the country’s economy.

The Reserve Bank of Zimbabwe held its overnight lending rate at 35 percent during a policy meeting on December 18, 2020. The benchmark interest rate in Seychelles was also last recorded at three percent.

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