Zambia's January Inflation Slows to 7.7% as Policy Rate Decision Draws Near

2015 has started off in stark contrast to the previous year - January inflation slowed down for a second month in a row to 7.7 percent. According the Central Statistical Office (CSO), the slowdown was driven by a decline in food as well as some non-food prices.

Trade balance

The trade balance recorded at a deficit of K81.9 million (provisional) in December 2014, from a revised November 2014 surplus of K68.3 million.

Policy Rate

The Central Bank is set to announce the first quarter 2015 policy rate on February 8. The Kwacha (which currently plays a key role in price stability in Zambia) experienced some volatility during the recent presidential election, reaching as high as K6.68 per US Dollar but stabilising to around K6.48 (after central bank intervention). Will the significant reduction in fuel pump prices play a greater role than the Kwacha in the first policy rate decision of 2015?

Bank of Zambia (BoZ) could either be conservative (hold policy rate at 12.5% and see if inflation continues downward trend in Q1 before potential rate cut) or bold (cut policy rate by at least 200 bp without waiting for inflation to fall further in order to stimulate private sector lending which slowed down in 2014).