Bank of Zambia Cuts Rates Again Despite Iran War Risks

As global central banks pause to assess how the Iran war will ripple through energy, food and fertilizer markets, Zambia is moving in the opposite direction, leaning further into monetary easing on the view that cooling inflation and a stronger harvest may outweigh rising external risks from a conflict that is reshaping global commodity prices.

Zambia’s central bank has extended its monetary easing cycle, cutting its benchmark lending rate for a third straight meeting as inflation continues to slow, even as many policymakers worldwide pause to assess the economic fallout from the Iran war.

The Bank of Zambia lowered its main interest rate to 13.25% from 13.5%, Governor Denny Kalyalya told reporters in Lusaka.

Zambia joins a small group of countries, including the Democratic Republic of the Congo and Guinea, that have reduced borrowing costs since the conflict began on Feb. 28, while most central banks have opted to hold rates steady.

“In arriving at this decision, the committee took into account” the expected favorable corn harvest during the current crop marketing season and the relative stability in the exchange rate, Kalyalya said. The “upside risks and uncertainty associated with the Middle East conflict warranted a cautious adjustment.”

Inflation in Zambia has remained within the central bank’s 6% to 8% target range since February and is expected to cool further, although the conflict involving Iran is creating fresh risks for the southern African nation, which imports fuel and other key commodities.

The war has pushed up food, fertilizer and energy costs following disruptions linked to the blockade of the Strait of Hormuz, a major global transit route for oil, liquefied natural gas and crop nutrients.

The government has sought to cushion consumers from rising prices by suspending fuel taxes through the end of June and zero-rating value-added tax on fuel products.

Zambia is also seeking financial support from the International Monetary Fund and World Bank to help manage the economic impact of the war. The country is in talks with the IMF over a new support program expected to be finalized after August elections.

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