BOZ CITES HIGHER MAIZE GRAIN, ENERGY PRICES AS KEY RISKS TO INFLATION
HIGHER maize grain and energy prices, coupled with resolutions of challenges at the Mopani Copper Mine (MCM) and Konkola Copper Mine (KCM), are some of the key risks associated with the current inflation outlook.
Inflation is projected to drift away from the targeted range of between six and eight percent over the next eight quarters, first quarter of 2024 to fourth quarter of 2025 under a no policy change scenario.
This is according to the Bank of Zambia (BoZ) in its Monetary Policy Report launched last month in Lusaka.
The current inflation currently stands at 13.5
The Central Bank said the inflation forecast considered the rate percent. 9.0 percent and 15.0 percent increase in electricity tariffs expected in the second quarter of 2024 and 2025, respectively.
In addition, the forecast incorporated the impact of the 900-basis point increase in the statutory ratio on both local and foreign currency deposits to 26.0 percent that took effect on February 5, 2024.
“The current projection is higher than the November outlook. It is projected to average 12.5 percent in 2025. The persistent depreciation of the exchange rate as well as prevailing high maize grain and fuel prices are the key driver of the projected inflation.
“The slowdown in inflation in 2025 is attributed to the expected decline in world food prices, moderation in loose monetary conditions and easing domestic demand,” according to the BoZ.
Higher maize grain prices due to lower than anticipated supply amidst prevailing regional demand was cited as one key risk associated with the current inflation outlook.
According to the BoZ, the El Nino, currently experienced in Southern Africa, could result in below-average rainfall in much of the region.
“For instance, in Zambia, key agricultural Provinces have received lower rainfall so far this season than in the same period last year. This may lead to lower maize production and put pressure on domestic maize prices,” the Bank indicated.
Another risk pointed out by the BoZ was higher energy prices due to protracted conflict in Middle East, indicating that this could delay the delivery od crude oil and escalate shipping costs and subsequently exert upward pressure on prices, especially in the near term.
The Bank further identified challenges at the MCM and KCM as another risk associated to inflation outlook as well as possible upgrade of Zambia’s long-term credit rating after the conclusion of external debt restructuring. “These events are assessed to be a downside risk to the inflation outlook. With the resolution of challenges, the two mines are expected to augment the supply of foreign exchange on the market through increased production and sales of copper.
“The foreign currency rating may be upgraded once negotiations with creditors are concluded. This is expected to generate sentiments favourable for the foreign exchange market,” the BoZ indicated.