BANK of Zambia governor Dr Denny Kalyalya says the the Monetary Policy Rate has been maintained at 9 percent due to the continued deceleration in inflation and its projected further decline towards the of end 2023.

Meanwhile, Bank of Zambia Director ICT Dr Gregory Nsofu says the central bank has identified the hackers that caused a disturbance to its computer system recently.

At a media briefing, Wednesday, Dr Kalyalya said other factors which influenced the monetary policy committee to maintain the rate include the positive efforts in implementing fiscal consolidation measures, relatively weaker growth prospects over the medium-term, among others.

“The Monetary Policy Committee (MPC) at its May 16-17, 2022 meeting decided to maintain the Monetary Policy Rate at 9.0 percent. The continued deceleration in inflation and its projected further decline towards the target range of 6-8 percent by end-2023 were the two main factors that informed the MPC decision. The underlying factors the Committee considered included the positive efforts in implementing fiscal consolidation measures, relatively weaker growth prospects over the medium-term, as well as lingering vulnerabilities and risks to the financial sector,” he said.

Dr Kalyalya said the annual overall inflation in Q1 declined to 14.1% from 18.9 in the last quarter of 2021.

“Annual overall inflation continued to trend downward in the first quarter of 2022, declining to 14.1 percent from 18.9 percent in the last quarter of 2021. The fall in inflation was driven by the dissipation of shocks to prices of meat products and fish, lagged pass-through from the against the US dollar as well as improved supply of fish and fresh maize. Food inflation declined sharply to 16.1 percent from 24.5 percent while non-food inflation edged down to 11.6 percent from 12.5 percent. In April, annual overall inflation decelerated for the ninth consecutive month reducing to 11.5 percent from 13.1 percent in March. Increased supply of mostly vegetables and solid fuels was key to the decline in inflation,” he said.

Dr Kalyalya predicted that inflation would continue trending downwards towards single digits over the next eight quarters.

“Over the next eight quarters, inflation is projected to continue trending downwards towards single digits. In 2022 inflation is projected to average 12.5 percent and then drop to 8.9 percent in 2023. Underlying these projections are mostly the effects of enhanced fiscal consolidation anchored on the resolution of the external debt overhang supported by an International Monetary Fund Extended Credit Facility, These combined are expected to boost market confidence, anchor inflation expectations, positively impact macroeconomic stability and ultimately contribute to growth that has remained subdued for some time,” he said.

“However, there are upside risks to this inflation outlook. These include increases in global energy and food prices exacerbated by the on-going Russia-Ukraine conflict; outbreaks of more infectious strains of COVID-19; and tighter global financial conditions arising from contractionary monetary policies in advanced economies. The projected grain deficit in some of our neighbouring countries coupled with reduced domestic surplus is likely to push up food prices.”

Dr Kalyalya said in the first quarter, the Kwacha depreciated by 3.7 percent against the US dollar.

“During the quarter under review, the Kwacha depreciated by 3.7 percent against the US dollar to an average of K17.76 per US dollar. This was on account of excess demand for foreign exchange chiefly for importation of petroleum products. To moderate volatility in the exchange rate the Bank of Zambia continued to support the market. In this regard US$372.0 million was provided to the market. This was mainly facilitated by foreign exchange purchases from the mining sector amounting to US$422.0 million,” he said.

He said in the first quarter of 2022, the interest rates remained unchanged.

“Interest rates were broadly unchanged in the first quarter of 2022. The overnight interbank rate was kept within the bounds of the monetary policy rate corridor throughout the quarter around 8.9 percent. Yield rates on Government securities marginally declined. The weighted average treasury bill and government bond yield rates declined by 0.3 and 0.2 percentage points to 12.7 percent and 21.7 percent in March respectively. The commercial banks’ average nominal lending rate at 26.0 percent and the 180-day deposit rate for amounts exceeding K20,000 at 7.5 percent remained unchanged,” Dr Kalyalya said.

Dr Kalyalya said in March 2022, total domestic credit grew by 11.5 and that growth in credit to government slowed down to 16.8% in the same month.

“In March 2022, total domestic credit grew by 11.5 percent year-on-year compared to 8.6 percent in December 2021 largely on account of recovery of credit to the private sector. Although the uptake of domestic credit continued to be dominated by the public sector it is worth noting that private sector credit growth recovered to 1.4 percent year-on-year from a contraction of 7.8 percent in the previous quarter. This growth which arose from increased need for working capital by businesses to meet rising operating costs was partly supported by further drawdowns on the Bank of Zambia Targeted medium term refinancing facility,” he said.

“In contrast, year-on-year growth in credit to Government slowed down to 16.8 percent in March 2022 from 17.9 percent in December 2021. The continued reduction in credit to Government in part reflected Government limiting the issuances of securities according to plan. In March money supply (M3) contracted by 0.2 percent, year-on-year, against a growth of 3.7 percent in December 2021. However, adjusted for exchange rate movements, money supply grew although it still slowed down further to 17.5 percent from 32.4 percent. The slowdown in credit growth to government largely accounted for this outturn.”

He said high frequency indicators of economic activity suggest a slowdown in the first quarter of 2022.

“High frequency indicators of economic activity suggest a slowdown in the first quarter of 2022. According to the Bank of Zambia Survey of Business Opinions and Expectations the volumes of sales and service, domestic sales, profitability, level of investment, as well as new orders declined. Similarly, the Stanbic Bank Zambia PMI fell below the 50.0 mark signalling weakening business conditions for the private sector as new orders output and employment decreased. The slowdown in economic activity is attributed to higher input prices and rising fuel pump prices. However, there were signs of recovery in April as the PMI rose to 50.5, with output new orders and employment posting some growth,” Dr Kalyalya said.

“Preliminary data indicate an improved fiscal performance in the first quarter of 2022 largely on account of high revenue collections particularly from the mining sector. However, expenditure slightly exceeded the target following a deliberate increase in spending on social programmes. For 2022 as a whole the fiscal deficit as a percent of GDP is projected to narrow to 6.7 percent from a preliminary outturn of 9.0 percent in 2021. Further reduction in the deficit is projected in 2023 and 2024 to 6.3 percent and 5.2 percent, respectively. Enhanced revenue mobilisation measures and rationalisation of expenditure reinforced by the debt restructuring under the G20 common framework underpin this projection.”

Dr Kalyalya also predicted that the economy was expected to expand by 3.5 percent and by a further 3.6 percent and 3.9 percent in 2023 and 2024 respectively.

“In the medium-term real GDP is projected to grow moderately. In 2022 the economy is expected to expand by 3.5 percent and by further 3.6 percent and 3.9 percent in 2023 and 2024, respectively. The financial and insurance, information and communications, wholesale and retail trade, education, as well as mining sectors are expected to drive growth over this period. However, the impact of the Russia Ukraine conflict, slow recovery in trading partner countries and uncertainty surrounding the resurgence of new and more contagious COVID-19 variants amid a low vaccination rate remain key downside risks to the growth outlook,” he said.

And when asked on what role he played as Bank of Zambia governor in the transaction involving the infamous FTJ University, he said the bank had no business with what the client did with the money.

“One of the things you have to appreciate is that as a banker, we have what we may call principle agent relationship between the client and the banker. So in this particular case, the one who is the client, who is the principle, is the government. So as bankers, we cannot disclose matters that affect customers because imagine if it were you I just come and say do you know that’s how much they have in their account? At the level of an individual, once somebody has drawn money from the bank, it’s not up to the bank now to start running after the client to say that where are you taking that money, what are you using it for? It doesn’t work that way. So it’s the same way when you have a principle agent relationship with the government,” said Dr Kalyalya.

Meanwhile, at the same event, Dr Nsofu said the central bank had identified the hackers that caused a disturbance to its computer system recently.

“We know the attackers, it’s a group called the Hive Group, quite common with this kind of things. However, from our perspective, there is not much damage that has been done to our infrastructure. You might be aware that pretty much all our core systems are still up and running, not much sensitive data has actually been shipped out. The impact that we noticed was just to a test environment. So the data that might be leaked out there is actually testing data. So we are trying our best to try and contain the attack,” he said.

“It is a ransomware that we experienced. As you can imagine, ransomware comes with a demand for money but knowing that we had protected our core systems, it wasn’t necessary for us to even engage in that kind of conversation. So pretty much, we told them to get off because it is our data.”