By Cecilia Chiluba/Zambia/Lusaka
Bank of Zambia (BOZ) has reduced its benchmark lending rate for the second quarter of 2026, by 25 basis points to 13.25 percent, from 13.5% in the first quarter.
The Bank’s decision follows a sharp decline in inflation and expectations of a favourable maize harvest this year.
Speaking after the Monetary Policy Committee (MPC) meeting held on May 11 and 12, 2026, Bank Governor Denny Kalyalya said the decision was aimed at maintaining an appropriate monetary policy stance while supporting a lower inflation path.
Dr. Kalyalya explained that the decision was influenced by the expected favourable maize harvest during the current crop marketing season and the relative stability of the Kwacha against the United States dollar.
“Although these factors are strongly supportive of a lower inflation path, anchored within the 6-8 percent target band, the Committee judged that the upside risks and uncertainty associated with the Middle East conflict warranted a cautious adjustment to the Policy Rate,” Dr. Kalyalya said.
Zambia’s inflation declined significantly to 7.1 percent in March 2026 from 11.2 percent recorded in December 2025 before easing further to 6.8 percent in April, remaining within the central bank’s target range.
Dr. Kalyalya said the Committee noted that inflation is projected to remain within the 6-8 percent target band over the forecast period.
“In the first quarter of 2026, inflation averaged 8.0 percent compared to 11.3 percent in the last quarter of 2025. This marked disinflation was mainly driven by the continued base effects from maize grain and related products as well as the sharp appreciation of the Kwacha/US$ exchange rate,” he explained.
He noted that inflation is expected to average 6.8 percent in 2026 before moderating further to 6.1 percent in 2027.
Dr. Kalyalya, however, warned that the ongoing conflict in the Middle East remains a major risk to the inflation outlook due to rising global crude oil prices and increased domestic fuel prices.
“The protraction of the Middle East conflict, which has already resulted in higher global crude oil prices, and, in turn, a rise in domestic fuel pump prices, presents a significant upside risk to the inflation outlook,” Dr. Kalyalya stated.
He added that Government interventions, including the suspension of excise duty and zero-rating of Value Added Tax (VAT) on petroleum products for three months, had helped cushion fuel price increases.
The Central Bank Governor further cited the possible emergence of an El Niño weather event from mid-2026 as another upside risk to inflation.
Dr. Kalyalya said future decisions on the Policy Rate would continue to depend on inflation trends, forecasts and risks to financial stability.
