Fitch Solutions Group Ltd, a UK affiliate of Fitch Ratings has projected that the Bank of Zambia (BoZ) will implement further monetary tightening over the coming quarters in an effort to contain inflationary and exchange rate pressures.

In a note, Fitch also forecast that the Central Bank will hike its policy rate by 50 basis points (bps) to 10.75% by end-2019, before raising it again to 11.25% in 2020.

It however said while greater-than-expected kwacha weakness could trigger a more hawkish response from the BoZ, more aggressive monetary loosening in developed markets than they currently anticipate could ease pressure on the BoZ to tighten in the short term.

“We at Fitch Solutions expect that the Bank of Zambia (BoZ) will implement further monetary tightening over 2019 as the pass-through effect of kwacha depreciation will keep inflation elevated over the remainder of the year. While the kwacha has pared back some of its losses since falling to an all-time low of ZMW14.1/USD on May 17, it has lost 28.5% of its value against the dollar in the year to date due to fragile investor confidence in Zambia’s debt market,” it said.

It noted that continued exchange rate weakness over the coming months will feed through to most components of the consumer price index, keeping price growth elevated.

“Moreover, food price inflation, which climbed from 7.7% y-o-y in February to 9.3% in July, will continue to rise as drought weighs on crop yield prospects for the year. Against this backdrop, we expect that headline inflation, which reached 8.8% y-o-y in July, will remain above the upper bound of the Bank of Zambia’s (BoZ) 6.0-8.0% target range. This will motivate the BoZ to raise its policy rate by a further 50 basis points (bps) by end-2019, following a previous 50 bps hike in May, bringing the rate to 10.75%.”

In 2020, Fitch says it expects that the BoZ will enact another 50 bps hike in the face of sustained inflationary pressures and declining foreign reserves.

“We forecast average annual inflation will rise slightly from 8.3% in 2019 to 8.5% in 2020. Increased electricity charges-deferred in May – are likely to come into effect over the coming quarters given the need for utility firm Zesco to move towards more cost-reflective tariffs, thus driving higher inflation next year,” it said.

“Moreover, we do not expect significant progress on fiscal consolidation over the short term and see the kwacha weakening further in 2020, keeping imported inflation elevated. That said, our Oil & Gas Team now forecasts Brent prices to fall from USD67.0/bbl in 2019 to USD65.0/bbl in 2020, which, compounding the base effects of sharp currency depreciation this year, will overall limit the extent to which inflation accelerates in 2020.”

It added, “Furthermore, we expect that rising public external debt will continue to weigh on the country’s stock of FX reserves, which declined from USD1.6bn at end-2018 to USD1.4bn in June 2019. We believe that above-target inflation and the need to attract foreign investment to support reserves will press the BoZ to raise the policy rate again next year, to 11.25%.”

Fitch also notes that Zambia’s foreign reserves will continue to decline.

“That said, concerns over muted GDP growth will limit the scope for more aggressive tightening over the coming quarters. We forecast real GDP growth will slow from 3.7% in 2018 to 1.5% in 2019, and while we expect it to rebound to 3.1% in 2020 – due to a likely return to positive growth in the mining and construction sectors – this remains well below its 2010-18 annual average of 5.2%.”

It says it believes that the central bank will adopt a cautious approach to raising interest rates given a weak macroeconomic backdrop.

“Moreover, a dovish turn in developed markets monetary policy will limit the BoZ’s need to tighten more aggressively to keep interest rates attractive. We nonetheless highlight risks to our interest rate forecasts.”

It says a significant deterioration in investor sentiment towards Zambia remains a possibility, particularly if the government shows only limited signs of fiscal restraint over the coming quarters.

Fitch says this could weaken the Kwacha more than we currently anticipate, leading to higher inflation and a sharper decline in FX reserves, thus posing upside risks to our interest rate forecast.

“On the downside, should the US Federal Reserve implement more aggressive cuts than we currently expect this could ease pressure on the BoZ to tighten in H219 given the potential for a short-term rally in emerging market assets.”

The Zambia Chamber of Mines has projected a 100,000 tonnes drop in copper production this year. Chamber of Mines Chief Executive Officer Sokwani Chilembo adds that Zambia’s mining industry is also expected to drop-off the global top ten Copper producers list.

He says the forecasted drop in copper production is a distant continental second behind the Democratic Republic of Congo who trailed Zambia’s volumes for 75 years until 2013.

Mr. Chilembo says Zambia’s mining industry has been battling to sustain production levels, to contain cost escalation and to maintain asset quality after over a decade of near biennial tax burden increases.

He adds that non-tax revenue measures have rapidly accumulated and electricity tariff increments.

This is contained in a statement availed to ZNBC News in Lusaka.

And The Zambia Chamber of Mines has challenged stakeholders in the mining sector to fully exploit the extractive industry in Northern Province.

Chamber of Mines Deputy Chief Executive Officer Talent Ng’andwe said small-scale miners and other players should actively take part in mining activities in the province which has some mineral deposits.

Mr. Ng’andwe said mining must not only be limited to copper production adding that there is need to explore the potential for other minerals and precious stones within the province.

And Mr. Ng’andwe has urged local authorities to take advantage of the extractive business to raise revenue.

He added that increased quarrying activities due to construction, provides an opportunity for councils to generate funds.

Mr. Ng’andwe said this in Kasama during a stakeholders’ dissemination meeting organized by Zambia Extractive Industries Transparency Initiative.

Earlier, Northern Province Assistant Secretary Sineva Kambenja said government remains resolute to ensuring that the country benefits from the mining sector in line with the Seventh National Development Plan.

Mr. Katambo said his Ministry is not allowing the export of maize and maize products and other wings of government are working with the ministry to ensure that all available stocks remain in the country.

He said smuggling is a serious threat to national food security as it has the potential of creating maize shortages and higher mealie meal prices in the country.

And Mr. Katambo said in a statement that based on the analysis conducted by the ministry, some business houses have been taking advantage of the situation and are adding an abnormal mark upon the wholesale price or rather than the order price of mealie meal.

He says some have been adding between K3 to K4 per 25 kg bag of mealie meal, whereas others are adding more than K50 per 25 kg bag of mealie meal.

Mr. Katambo said this is the major challenge that government is currently addressing and his Ministry has been engaging millers, and from the discussions, millers have agreed to meet this week and strategize on how they can bring the wholesale price of mealie meal closer to consumers.

Meanwhile, Mr Katambo says his ministry has done an analysis that shows that offloading maize by FRA to millers does not benefit consumers.

He said FRA needs to offload huge quantities of maize to have an impact on mealie meal prices a situation that is not sustainable and will deplete the much needed strategic reserves.

Mr Katambo said the government is aware that there are some market players and some sections of society who have caught onto the habit of requesting for supplies from FRA strategic reserves under the pretext that the stocks will reduce mealie meal prices for consumers.

He, however, said despite accessing strategic reserves cheaply, it has not translated into low mealie meal prices.

Mr Katambo said the FRA has very limited stocks, which need to be offloaded prudently and in anticipation of any supply challenges that may arise after February 2020.

He has indicated that the lasting solution to high mealie meal prices is to increase maize production and the ministry is working closely with maize industry stakeholders to ensure they begin to have bumper harvests starting from 2020 and beyond as directed by President Edgar Lungu.

And on the Farmer Input Support Programme, Mr Katambo said the distribution of inputs commenced way before the 1st of September, 2019 and is hopeful to complete this exercise within the month of September.

He said this is a remarkable achievement and has encouraged officers involved to continue working hard.