THE Bank of Zambia has projected that the inflation rate will drop to a single digit by the end of the year despite the increase in fuel prices.
Addressing a media briefing yesterday in Lusaka, BoZ Governor Denny Kalyalya said that although the increase in fuel prices for October were likely to raise monthly inflation in November and December, the annual inflation rate was still projected to fall to a single digit by the end of the year.
Single digit inflation has also been predicted by the Monetary Policy Committee (MCP) which noted that the annual overall inflation declined over the second and third quarter of 2016 from 22.2 percent in March to 18.9 percent in September.
Dr Kalyalya said that the drop in overall inflation was driven by both food and non-food inflation attributed mainly to the seasonal increase in the supply of some food items and the appreciation of the local currency against the dollar.
Dr Kalyalya further stated that economic activities were restrained due to continued electricity shortages, high cost of and unavailability of credit as well as increased labour costs.
Meanwhile, the central bank has maintained the policy rate at 15.5 percent and has eased access of liquidity to commercial banks by removing some quantitative restrictions.
The MCP welcomed the introduction of a medium –term inflation target of 6 to 8 percent announced by Minister of Finance Felix Mutati in the 2017 budget address. Dr Kalyalya said that the budget appropriately focused on tackling the challenges to fiscal sustainability, economic diversification and overall growth.
He said that effective implementation of the budget could rebalance fiscal and monetary policies going forward.
Demand for Government securities has increased in the third quarter with strong participation by local institutional investors and renewed interest from non-resident investors in longer dated securities.
Dr Kalyalya said the stock of Government securities rose by 3.4 percent to K 25.3 billion while holdings of Government securities by non-resident investors increased by 59 percent to K 2.9 billion of which 98 percent was in bonds.
He further said that the current deficit had increased by U$25.6 million during the third quarter of 2016 to U$ 107.2 million mainly on account of interest payments on Eurobonds. However, he expressed happiness that the trade balance had slightly improved as export earnings grew to U$1.61 billion from U$ 1.58 billion while exports remained steady at U $ 1.5 billion.