Zambia's central bank decided to keep its benchmark lending rate steady on Wednesday, citing that despite persistent high inflation, the current rate was suitable due to the economic effects of a severe drought.

The Monetary Policy Rate was maintained at 13.50% following six consecutive meetings where it had been increased. This year, the Bank of Zambia has already raised the rate by 100 basis points in May and 150 basis points in February.

“While actual and projected inflation remain elevated relative to the 6%-8% target band, the committee judged that the current monetary policy stance is appropriate,” stated central bank governor, Denny Kalyalya.

Inflation has been climbing since mid-last year, hitting 15.4% year-on-year in July, driven by a decline in the Kwacha currency and the worst drought in decades in the southern African region, Reuters news agency reports.

The central bank now expects inflation to average 15.3% in 2024, an increase from the 13.7% forecast provided at its previous policy meeting in May.

Furthermore, the central bank governor stated that completing Zambia's external debt restructuring and implementing structural reforms are crucial for reducing inflation. 

The Kwacha has struggled with delays in restructuring discussions and limited foreign-currency inflows, leading to a series of record lows against the Dollar from November to February and continued volatility since then.

“In taking the decision to maintain the Policy Rate as opposed to raising it, the committee also took into account the impact on the stability of the financial system and growth, particularly in 2024, in the wake of the drought,” Kalyalya went on to add.