The Bank of Zambia has cut its key policy rate by 250 basis points to 10.75%, delivering its fourth consecutive rate cut as inflation continues to ease.
The decision came on Wednesday, September 30, against the backdrop of a sustained disinflationary trend that has been underway since early 2025.
And this was a move we were watching closely at Katondo Street Journal.
In yesterday’s analysis, “What Will the Bank of Zambia Do With the Policy Rate?”, we examined the case for another cut, pointing to falling inflation and the changing monetary policy environment.
Read yesterday’s KSJ analysis: What Will the Bank of Zambia Do With the Policy Rate?
Inflation gave the Bank room to move
Annual inflation eased to 6.1% in September, down from 6.2% in August. That is the lowest annual inflation rate since February 2018 and places inflation close to the lower end of the Bank of Zambia’s 6–8% target range.
The decline in inflation has been supported by several factors, including the suspension of fuel taxes, zero-rating of value-added tax and a relatively resilient Kwacha.
The result is a very different inflation environment from the one Zambia faced when monetary policy was considerably tighter.
What does a 10.75% policy rate mean?
The policy rate is not the interest rate consumers see directly on their loans. Instead, it is one of the key signals used by the central bank to influence financial conditions across the economy.
A lower policy rate can eventually translate into lower borrowing costs if commercial banks adjust their lending rates.
For businesses, that could mean cheaper financing for working capital and investment. For households, it could affect the cost of new borrowing and, depending on the type of loan, existing variable-rate credit.
But the transmission will not necessarily be immediate. Banks also consider their own funding costs, liquidity and credit risks when setting lending rates.
The bigger question now
With inflation at 6.1%, the focus shifts from whether inflation is falling to how the Bank manages monetary policy with inflation now near the bottom of its target range.
The latest cut therefore marks another step in Zambia's transition from an environment of high inflation and tight monetary conditions towards one where policymakers have greater room to support economic activity.
For businesses and consumers, the question now is whether the reduction in the policy rate will begin to show up more clearly in the cost of credit.
For KSJ, Wednesday's decision also provides a useful reminder: watching the inflation data can tell us a lot about where monetary policy may be heading.
