Zambia cuts interest rate to two year low despite Iran war shock

The Bank of Zambia has lowered its benchmark interest rate for the third meeting in a row, as easing inflation and a relatively stable currency gave policymakers room to support economic activity despite growing uncertainty from the conflict involving Iran.

The central bank on Wednesday cut its main interest rate by 0.25 percentage points to 13.25 percent, a smaller reduction than the 0.75 percentage point cut announced in February.

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According to African Economy, Inc, the decision comes as inflation in the copper producing Southern African nation continues to slow. Annual inflation eased to 6.8 percent in April from 7.1 percent in March, marking the fourth consecutive month of declining price growth and keeping inflation within the central bank’s target range of 6 percent to 8 percent.

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Speaking to reporters, Denny Kalyalya, Bank of Zambia governor said the central bank was encouraged by expectations of a strong maize harvest and continued stability in the kwacha.

“In arriving at this decision, the bank took into account the expected favourable maize harvest during the current crop marketing season and the observed relative stability in the exchange rate of the kwacha,” Kalyalya said.

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The latest rate cut reflects growing confidence among policymakers that inflationary pressures are easing after months of economic strain driven by drought, food shortages and currency weakness.

Still, the central bank signalled caution, warning that risks remain because of tensions involving Iran and the possible impact on global oil prices and fuel costs.
Higher energy prices have become a major concern for import dependent economies across Africa, with rising fuel costs threatening to push up transport and food prices.

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To ease pressure on households and businesses, the Zambian government in April temporarily suspended some fuel taxes for three months as global oil prices climbed.

According to African Economy, Inc, the central bank now expects inflation to average 6.8 percent in 2026 before slowing further to 6.1 percent in 2027.

While the smaller rate cut suggests policymakers remain careful about external risks, the latest move is likely to be welcomed by businesses and borrowers seeking lower financing costs as Zambia’s economic outlook gradually improves.