The Bank of Zambia has raised the Monetary Policy from 8 percent to 8.5 percent.
Governor Christopher Mvunga says the decision to raise the monetary policy rate to 8.5 percent was based on inflationary pressure and the weak economic environment.
Mvunga said this when he announced the Monetary Policy committee decision at Bank of Zambia in Lusaka on Wednesday.
He said should inflation persist above the upper bond of 6 and 8 percent target range, the bank of Zambia will tighten monetary policy.
Mvunga however noted that indicators of domestic economic activity point to a less severe contraction in real gross domestic product in the last half of 2020 following the partial relaxation of Covid-19 restrictions.
He said in 2021, the economy is projected to recover, supported by positive growth in mining, electricity, gas and water as well as information and communication.
Mvunga however expressed concern that the uncertainty surrounding the resurgence of Covid-19 infections and the narrow fiscal space pose significant downside risks to the 2021 growth outlook.
On Government securities, the Governor said both treasury bills and Government bonds were undersubscribed.
Mvunga said the bid amounts for Treasury Bills fell short of amounts on offer by 20 percent while government bonds fell short by 70 percent.
He however said the funds raised from the auctions were adequate to cover maturities resulting in a marginal surplus of 300 million Kwacha.
Mvunga said the stock of government securities rose by 9.7 percent to 130.2 billion Kwacha.
He said non-residents hold 18.4 billion Kwacha in government securities representing 14 percent of the total stock.
Mvunga said 93 percent of the holdings were in government bonds.
On Interest rates, Mvunga said lending rates declined to 25-point 1 percent in December from 25.7 percent in September, 2020.
On Foreign Exchange market, Mvunga said the Kwacha weakened against the dollar by 9-point 4 percent to average of 20 Kwacha 71 ngwee to one U.S. dollar in the fourth quarter of 2020.
He said in the previous quarter the Kwacha depreciated by 3.3 percent.
Mvunga said the central bank scaled up interventions to moderate pressure on the exchange rate by selling 339 million dollars in the last quarter of 2020.
He said Gross International reserves declined by 117.7 million dollars to settle at 1.2 billion dollars which is equivalent to 2.4 months of import cover at the end of 2020.