Zambia cuts key interest rate to 10.75% as inflation eases

The Bank of Zambia (BoZ) has cut its benchmark Monetary Policy Rate (MPR) by 250 basis points to 10.75% from 13.25%, marking a substantial easing of monetary policy as inflation moves further into the central bank’s target range.

The decision was taken at the Monetary Policy Committee meeting on September 28–29 and follows a smaller 25-basis-point reduction in May, when the MPR was lowered to 13.25%.

The latest move comes as Zambia’s inflation environment has improved significantly. Annual inflation stood at 6.1% in September, down from 6.2% in August, according to the latest information from the central bank. The rate is now within the BoZ’s 6–8% target range.

The easing reflects the sharp improvement from the beginning of the year, when inflation was still above the target range. In February, the BoZ noted that inflation had fallen to 9.4% in January and projected that it would move into the target band during the second quarter of 2026.

The significance of the latest decision extends beyond the policy rate itself. The MPR is an important reference point for financial-market conditions and influences the cost at which banks and other financial institutions obtain and price funds.

For businesses, a lower policy rate can create room for cheaper credit, potentially improving the economics of working-capital facilities, business expansion and new investment. It can also improve financing conditions for households and contribute to stronger economic activity.

The transmission will not necessarily be immediate or equal to the full 250-basis-point reduction. Commercial lending rates are influenced by a range of factors, including banks’ funding costs, credit risk and liquidity conditions. The key issue for the private sector will therefore be how much of the policy easing is passed through to borrowers.

The decision also reflects improving macroeconomic conditions more broadly. Earlier in 2026, the BoZ identified the appreciation of the Kwacha and stronger agricultural output as important factors behind the decline in inflation. Its May monetary policy assessment projected average inflation of 6.8% for 2026 and 6.1% for 2027, while noting risks from factors including oil prices and weather conditions.

For investors, the lower interest-rate environment changes the financing backdrop for Zambia’s economy. If the reduction feeds through to commercial lending, it could lower the cost of capital for companies and improve conditions for investment. The extent of that effect will depend on credit demand, banking-sector transmission and the durability of the decline in inflation.

The BoZ’s challenge will be to maintain the gains in price stability while allowing monetary conditions to support economic activity. Its earlier policy statements have emphasised that future decisions will continue to be guided by inflation outcomes, forecasts and risks to financial stability.

The move to 10.75% therefore marks an important shift in Zambia’s monetary environment: from containing elevated inflation toward creating greater room for financing and economic activity, while keeping price stability at the centre of monetary policy.