Kwacha instability affecting inflation

A Financial Analyst has attributed the continued increase in inflation to the Kwacha instability which he says has potential to cause damage to the economy.

The Analyst has charged that the instability of the kwacha has also the potential to hinder the 6 – 8 inflation rate percentage target by the end of 2024 if no serious intervention measures are put in place.

Speaking in an exclusive interview with the Zambian Business Times – ZBT- Financial Analyst Bright Chizonde said the current about 11 percent (10.8 percent) as of August 2023 is a result of the instability in Kwacha.

According to official statistics obtained by the Zambian Business Times, the inflation rate has hit 11 percent as of August 2023.

The 10.8 percentage is however 2.8 percentage points above the top limit of the central Bank’s 6%-8% target range.

Chizonde noted that this is because of the volatility of the exchange rate being faced currently. “So if the kwacha continues to behave the way it has been behaving, the pass on effect or pass-through effect from the depreciation of the kwacha or the movement of the kwacha to the inflation will continue to a problem.”

He said there will be continuous pressure on the kwacha and that it is about how the kwacha will be managed that will determine whether inflation can be kept at the projected 6 to 8 percent. He noted that the country had a debt restructuring issue which is still in the process and once fully resolved there will be an expectation of the kwacha to be a bit more stable.

Meanwhile Chizonde said it is also important to note that the objective to reduce inflation is in the opposite direction with that of growth as there is a trade between inflation and economic growth prospect, so if the economy is squeezed so much and money supply is reduced, there will not be sufficient liquidity for the economy to grow.