Country Report Zambia April 2010

Outlook for 2010-11: Monetary policy

One of the main priorities of the Bank of Zambia (BoZ, the central bank) is to bring down inflation. The BoZ should be more successful during 2010-11, as food price pressures are expected to be lower. The BoZ also intends to move away from setting monetary aggregate targets and towards the direct setting of a policy interest rate, in line with most other central banks. This should-in theory-make it easier for the BoZ to smooth out adverse cyclical conditions, as well as targeting a specific inflation rate. However, higher copper prices may complicate this by creating excess liquidity in the economy. The BoZ also faces the task of stabilising the kwacha, which has experienced considerable volatility in recent months. However, it will remain committed to an exchange rate that reflects market fundamentals.

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