Bank of Zambia to release interest rate decision
The Bank of Zambia’s quarterly Monetary Policy Committee announcement will take place today, but a rate adjustment is not expected.
The central bank has slashed an unprecedented 350 basis points off the benchmark rate since February to combat disruptions wrought by the coronavirus, even as inflation increased and its currency depreciated. The overall economic contraction for the year will likely reach the upper limit of the African Development Bank’s projected range of 4-6.5%.
Last Friday, Zambia failed for the second time to make a $42.5 million Eurobond interest payment after unsuccessfully negotiating an extension with European creditors. The country faces an uphill battle to service its $12 billion of accumulated debt. However, Chinese financial institutions appear more amenable than their Western counterparts in providing debt relief; China’s Exim Bank agreed to suspend $110 million worth of payments due this year.
These divergent approaches to frontier markets will likely further aggravate the battle between China and the West for influence in Africa. With other heavily indebted countries in the region watching, the IMF is aiming to find a compromise that doesn’t strengthen China’s position or alienate creditors. Expect Zambia to deepen financial ties with China if overly austere restrictions are imposed.
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