The Bank of Zambia has hiked its benchmark interest rate to the highest in close to seven years in a bid to curb inflation and support the Kwacha.

The central bank’s monetary policy committee increased the rate for the fifth consecutive meeting to 12.5% from 11%, according to the bank’s governor, Denny Kalyalya, on Wednesday.

“The persistent depreciation of the Kwacha against major currencies as well as elevated food (maise and maise products) and energy (fuel) prices continued to push inflation up in the fourth quarter of 2023,” Governor Kalyalya said during a presentation. 

This latest decision is in addition to other measures undertaken by authorities to tighten liquidity to stabilise the Zambian Kwacha, which has declined 13% against the greenback since the monetary policy committee’s prior rate move on 22nd November.

The measure is also part of efforts to curtail annual inflation that is currently close to a two-year top of 13.2%.

Such measures include the implementation of new regulations at the beginning of the year which requires exporters to have accounts for income domiciled in Zambia, as well as a directive requiring commercial lenders to transfer government deposits to the central bank’s Treasury account, Bloomberg reports.

Furthermore, the country’s central bank hiked the reserve ratio requirement for lenders from 17% to 26%

Along with other central banks in Africa such as Egypt, Kenya and Malawi, the Bank of Zambia is keeping monetary policy tight amid inflation fears and currency pressures.

Their concerns will likely be exacerbated by hotter-than-forecast inflation data from the US published on Tuesday, indicating the Federal Reserve will perhaps keep rates higher for longer, consequently reducing investor appetite for emerging-market assets, the Bloomberg report adds.