CNBC Africa is joined by Musenge Komeki, Head of Sales: Global Markets Division, Stanbic Bank Zambia.
Well earlier of course, Prudence telling us that inflation over in Zambia is slowing in the month of March for the first time since 2023, begging the question, I'm sure, as to whether price pressures over in that economy have reached their peak and whether it's one way down from here or whether not too much can be read from one data print. To help us answer this question, obviously under the implications for monetary policy and the economy, I'm joined by Musenge Komeki, Head of Sales for Global Markets Division over at Stanbic Bank Zambia. Musenge, thanks so much for your time. So what do you think? I mean, a moderation in inflation in March. Inflation is still pretty high though in the double digits and especially if we look at what food is doing, but the price came down for the first time in 2023. So has inflation peaked in Zambia is the question? Well, I think that's what we've been looking for. We were looking for that peak and I think it's mainly driven by food inflation. If you look at the drop in food inflation, it was quite massive 1.7%. It moved from 20 to 18.9%. We did expect that food inflation will start to taper off, but by the good harvest, we can see from the range that we had that this year will be a much better food inflation drop than we saw last year. Last year, we were hit by droughts. Droughts just drove prices up. But I think that's now moderating. We've hit a peak in terms of food inflation. I think non-food inflation is still going up because of kwacha weakness. So that one will be cost-push inflation that side. But given that the basket is way more weighted to food inflation, we should see inflation peaking. Central Bank did project that we're going to close the year at 14.6% on inflation. I think our own economies projected that July, somewhere in July, we could see inflation beginning to come down. So I think it started much earlier. So we could see the pin going lower from now. So then you'd say that the worst is over. And I just wonder if one can actually say that with conviction, just given the fact that there's so many moving pieces on the chessboard right now globally that is impacting the ability to see through some of the major pricing trends. But how would you move your piece right now in terms of, would you call a checkmate on inflation, or would you be a bit wary to put your head on that statement right now? I'm still wary. I mean, the food inflation side of it is probably controlled. I think the biggest factor we face or the biggest risk we face is non-food inflation. We've got imported inflation due to kwacha depreciation. I think there's global inflation also coming up. I think one big factor will be how the kwacha performs. Should the kwacha continue to depreciate? Should the kwacha go above 30? Then we're going to see everything that we import become more expensive. We're going to see non-food inflation creeping much higher, and that will lead into the print. But should the kwacha remain stable and food inflation continues to drop, then we could say, and the base effects kick in, we could see, I think, the trend going lower. It might not be as quickly as people might want, but I think food inflation and overinflation should keep the rate going lower. What about the key policy rate? As I see on my screen, currently standing at 14.5 percent. What are your projections in terms of what that picture does look like by year end? At the last MPC, they did increase it by 50 basis points to 14.5. I think given today's inflation print, they might just not increase at the next MPC. They'll wait to see whether this trend will hold in terms of inflation continuing to slow down. If it doesn't slow down, I think at the next MPC, after this one, they might just decide to raise MPC. I think what's driving them is we still have a band, the 6% to 8% target, and we're far away from that target. In the long term, I think there's still a need to anchor that point higher to just to rein in on inflation. Yeah. Musunga, can I ask you about some new developments that came out last night? I'm sure yourself, like all of us, are keeping up with or trying with great difficulty to keep up with all the announcements regarding tariffs and developments thereof. We saw Mr Donald Trump talking about a 25% tariff on copper. We saw the price also react to a record, although it has softened right now. I mean, this is perhaps good for Zambia in terms of export revenue potential. But what do you think about the 25% tariff in terms of the broader implication on some of the mining activities in Zambia and also the overall economy? Well, I think the mining activity in Zambia is just picking up. All the big mines are into expansion phase. They're trying to increase production. I think the copper price above 9,000 is very good. Towards 10,000, it's very, very good. And I think we've seen that in the way expansion has gone on. I mean, tariffs on copper, I think the world can't run away from EVs. The world can't run away from more energy efficient technology. I think the demand is to be there. I think to just be more expensive, which makes, I think, everything more expensive, global inflation rising. But from where we're sitting, I think we're still seeing a lot of investment going into the mining sector. We expect that to continue. Trump, I mean, if you look at Elon Musk, Elon Musk has got a huge Tesla factory there, which needs a lot of copper. I don't know where he's going to get that copper from. It's not from Zambia or the Congo. So I think it's just the end product that will be more expensive. But the demand for copper should remain resilient. Well, he's got Chile, which is probably a little bit nearer to the U.S. than Zambia, but your point is well heard. Just speaking about investments, let's just talk about the latest deal coming from the Chinese, 1.4 billion rand investment in the Tanzania-Zambia railway. Just your thoughts on that and the broader impact on the economy, potentially. Yeah, that's 1.4 billion dollars, actually. Dollars, yeah. Thanks so much. Yeah. So the Americans have got the Lubuto corridor there. They're trying to build a new rail line to link into Zambia, into the copper mines. I think the Chinese are reacting by, they already built it as a rail line. So what they're basically doing is revamping it, making it more efficient. It's a long term project, but I think the message just peaks volumes in terms of the confidence they have in coming to Zambia and Tanzania, investing into the infrastructure which will be used to take out the copper into the Chinese corridor into America. So I think there's a war who gets there first. Both projects are long term, but I think both projects are good for Zambia. Both projects are good for copper. I think there's a long term view on copper that it's going to be relevant for the long haul. Yeah, it is a, I don't know if we must call it a war, but of course it is a race for broader exposure on the continent and ownership of certain resources between China and America that of course has been ongoing for some time. Although some say that the Chinese are currently winning the race right now, Americans perhaps have been slower to wake up. But just lastly, if we circle back to the currency, can you just give us some projections in terms of outlook amidst the slight depreciation that we're seeing right now? What are some of the major risks that you are seeing on the radar for the Zambian Kwacha? I think structurally what the Kwacha might suffer from, obviously the Trump tariffs. That's one thing. The second thing I think we might suffer from is the supply of dollars into the market. Currently, there's a lot of battery funds going on. It's not an incentive for anyone to sell dollars because they've got enough Kwacha. We started with our debt savings as well. That's another deal that we need to pay. I think the American aid was a lot. It was about 600 million supposed to come in today, which we won't see. If we look at the Kwacha medium to long, medium term, we'll probably see weakness. But what we've seen is I think clients and everyone else has been resistant. They're trying to resist the 30 Kwacha to the dollar level. So Kwacha is finding some support there. How long that happens, we might just see a bit of a correction. I think in the long term, we're still seeing Kwacha weakness. Of course, one can't not ignore the freezing of the aid from the U.S. and also the tapering of contributions from elsewhere in the world. A lot of economies scaling back on their contributions towards development aid. Rightly so, because we should be able to stand at our own two feet, but perhaps the pace at which it's happening is catching us off guard. But Musenge, thanks so much for your time, sir. We'll leave it there. Musenge Akomeki, Head of Sales, Global Markets Division over at Stanbix Zambia.
Theme: Analyzing the recent slowdown in inflation in Zambia and its implications for the economy and monetary policy decisions.
Zambia recently experienced a slowdown in inflation for the first time since June 2023, sparking discussions about the future trajectory of price pressures in the economy. The moderation in inflation in March was primarily driven by a significant drop in food inflation, which decreased from 20% to 18.9%. This decline was attributed to a better harvest year compared to the previous year, which was marred by droughts that led to price increases. While food inflation is expected to continue to taper off, non-food inflation remains a concern due to kwacha weakness. Despite the challenges posed by cost-push inflation, it is anticipated that inflation in Zambia is likely to peak soon. The Central Bank had projected a year-end inflation rate of 14.6%, with expectations of a gradual decline starting as early as July. However, uncertainties remain due to global economic dynamics and the impact of factors such as kwacha depreciation on import costs, which could lead to higher non-food inflation rates. The key policy rate currently stands at 14.5%, with expectations that any future adjustments will be contingent on the inflation trend. The recent 25% tariff on copper announced by Donald Trump has generated mixed reactions in Zambia, a major copper producer. While the tariff may increase export revenue potential, it could also affect mining activities and have broader economic implications. Nonetheless, the demand for copper is expected to remain strong, driven by global trends towards electric vehicles and energy-efficient technologies. In terms of investments, the Chinese government's $1.4 billion investment in the Tanzania-Zambia railway project signals confidence in the region's infrastructure and potential for economic growth. This investment, along with other ongoing projects, reflects a long-term view on the importance of copper in the global economy. Looking ahead, the outlook for the Zambian kwacha remains uncertain, with factors such as the Trump tariffs, supply of dollars in the market, debt obligations, and aid freezes contributing to potential currency volatility. While resistance to the 30 Kwacha to the dollar level has been observed, sustained depreciation in the medium to long term is a possibility. As Zambia navigates through various economic challenges, maintaining stability and fostering growth will be key priorities for policymakers and market participants.
"The recent slowdown in inflation in Zambia was primarily driven by a significant drop in food inflation, attributed to a better harvest year. While uncertainties remain due to global economic dynamics and kwacha weakness, expectations are high for inflation to peak and gradually decline."
['Zambia', 'inflation', 'economy', 'monetary policy', 'food inflation', 'non-food inflation', 'kwacha weakness', 'Central Bank', 'copper tariffs', 'mining activities', 'Chinese investments', 'Zambian currency']