Editor's note : The Bank of Zambia released its quarterly monetary policy statement in August. It noted the need for fiscal consolidation, by addressing revenue shortfalls and rationalising expenditures, in order to achieve fiscal sustainability and lower government security yield rates.
The Monetary Policy Committee (MPC) held its meeting on 10th August 2015. The MPC considered developments in the global and domestic economies during the second quarter of 2015, the outlook for the third quarter and to decide on the monetary policy stance aimed at achieving the Central Bank’s inflation objective in order to support macroeconomic stability.
GLOBAL ECONOMIC DEVELOPMENTS
The Committee observed that the trend of weak growth in the global economy evident in the first quarter of 2015, was sustained during the second quarter. Major emerging market economies, such as China, Russia and Brazil, continued to be sources of weakness to global economic growth, with deflationary consequences on most commodity prices. Over the quarter, the average prices for copper and crude oil (Dubai), for example, fell to US $5,833.0 per metric tonne (mt) and US $ 61.3 per barrel from US $6,295.0 per mt and US $63.7 per barrel, respectively. In addition, the brighter growth outlook in advanced economies, particularly in the USA, increased the prospects for interest rate hike over the next 12 months. This shifted investor preferences in favour of US dollar denominated assets and further supported the strengthening of the US dollar. As a result, there was pressure on the currencies of emerging market and developing economies which led to increased currency volatility and outflow of capital from these economies.