Rising inflation hurting the economy: BOZ urged to consider raising the Policy Rate
By Wakumelo Mataa
CTPD Researcher Public Finance Tuesday 16th February 2021
THE Center for Trade Policy and Development (CTPD) has noted with concern, the sustained rise in inflation over the recent past. Inflation rose from 12.5 % in January, 2020 to 21.5% in January, 2021, implying that the cost of a representative consumption bundle has almost doubled in just one year. During its last sitting in November, 2020, the Bank of Zambia Monetary Policy Committee (MPC) projected inflation to average 16.7% in the fourth quarter of 2020.
However, this is less than the actual inflation outcome for the fourth quarter which averaged 18.1%, partly reflecting the accommodative policy stance taken by the committee in the previous quarter on one hand, and the weakening of the Kwacha on the other.
While we note that growth concerns have outweighed inflation worries in recent MPC meetings. We recommend that the current deliberations be informed by the heightening effect of the continued rise in inflation on the cost of living and doing business in the economy.
We remain cognizant of the more relaxed stance taken by the MPC over the recent past, as the policy rate was lowered by 350 basis points in 2020, with a view to stir economic activity and support businesses as they were recovering from the downside effects of the lockdown. Although the incidence rate of Covid-19 has spiked in the second wave, there has been a radical shift in the response strategy as businesses have found innovative ways of sustaining their operations amidst the pandemic as opposed to closing down. This, coupled with recent IMF global growth prospects for 2021, has potential to underpin the improvement in domestic economic activity, thereby allowing BoZ some space to focus more on price stability in the medium term.
The Centre for Trade Policy and Development (CTPD) is a not- for –profit, membership based trade policy and development think tank. The organization was established in 1999 and existed as the civil society trade network (CSTNZ), until 2009 when it was rebranded as the Centre for Trade Policy and Development (CTPD).
The mandate of CTPD is to influence pro-poor trade and investment reforms at national, regional and multilateral levels as well as facilitate the participation of various stakeholders including member organizations in ensuring that trade is used as a tool for poverty eradication.
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