Editorial: A Rate Cut That Hits Home – What the Bank of Zambia’s Decision Means for You

Editorial

On Monday, the Bank of Zambia’s Monetary Policy Committee delivered a decision that should matter to every Zambian – from the market trader in Soweto to the salaried professional in Woodlands. The central bank cut the benchmark lending rate by 75 basis points to 13.5 per cent, only the second reduction in five years and a larger move than most analysts had expected. Reuters had forecast a more cautious cut to 14 per cent. The Bank of Zambia went further, and that confidence tells its own story.

Governor Denny Kalyalya was clear about what drove the decision: inflation has fallen faster than anyone predicted. In January, the annual rate dropped to 9.4 per cent, down sharply from 11.2 per cent in December. A bumper maize harvest has brought food prices down, and the Kwacha’s strengthening – up roughly 4 per cent against the dollar in the fourth quarter and a further 14 per cent so far this year – has made imports cheaper. The central bank now expects inflation to fall within its 6 to 8 per cent target band by the second quarter of this year, far earlier than projected just three months ago. The average for 2026 is forecast at 6.9 per cent, down from November’s projection of 7.6 per cent.

These are not abstract numbers. They describe the cost of living. When inflation falls, mealie meal, cooking oil and transport fares stabilise. Your money stretches further at the the market. When the Kwacha strengthens, the price of imported goods – from fuel to medicine to building materials – comes down. For millions of Zambians who have endured years of rising prices, this is tangible relief.

And now the interest rate cut adds another dimension. A lower policy rate signals to commercial banks that borrowing costs should come down. For the small business owner looking to stock up on inventory, the young couple hoping to buy their first home, or the farmer seeking credit ahead of the planting season, cheaper loans make the difference between opportunity seized and opportunity lost.

President Hakainde Hichilema came to office in 2021 inheriting an economy in crisis – Africa’s first pandemic-era sovereign default, inflation spiralling beyond control, and a currency in freefall. The reforms that followed were often painful and rarely popular. Fiscal discipline, IMF engagement, debt restructuring negotiations, and a refusal to take the easy, short-term path demanded patience from a population that had already endured too much. The President spoke often of sowing seeds. Critics asked when the harvest would come.

The evidence now suggests the harvest is arriving. Inflation at its lowest level in years and falling. A currency that is strengthening rather than collapsing. The mining sector supplied more than $759 million in foreign exchange in the fourth quarter alone, up from $637 million the previous quarter, with mining-related tax payments nearly doubling to $344.6 million. A sovereign credit rating upgrade has boosted investor sentiment, and non-resident holdings of government securities have risen to K65.7 billion – a quarter of all outstanding government debt. Foreign investors are putting their money where their confidence is.

None of this should invite complacency, but the trajectory is now unmistakable. This rate cut is evidence that the process is working. The seeds that were sown in the difficult early years of this administration are bearing fruit.