The numbers point in several directions ahead of Wednesday’s policy rate announcement.
The Bank of Zambia is due to announce its latest monetary policy decision on 30 September 2026, with the policy rate currently at 13.25%.
Ahead of the announcement, Nsembe Technologies’ policy-rate analytics model points to a relatively narrow range around the current rate — but with some room for a cut.
The model’s latest estimates, based on data through August, put the implied policy rate between 13.16% and 13.78%. Its blended signal is 13.47%, just 0.22 percentage points above the current rate.
That means the data does not point to a large move in either direction.
Inflation is giving the BoZ some room
Annual inflation fell to 6.2% in August, down from 6.5% in July and below the midpoint of the Bank of Zambia’s 6–8% target band.
That is important for monetary policy.
With inflation currently within the target range, there is less immediate pressure from prices for the central bank to raise interest rates. At the same time, the Bank still has to consider the exchange rate, fiscal conditions and external risks before deciding whether there is enough room to ease.
The kwacha was trading around K18.90 per US dollar in the August dataset, with relatively limited recent movement.
But interest rates remain high in real terms
The current 13.25% policy rate is substantially above August inflation.
On a simple policy-rate-minus-inflation measure, that produces a real policy rate of about 7.05%.
That suggests monetary conditions remain restrictive, particularly when compared with an assumed neutral real rate of around 2%.
Average commercial-bank lending rates were still 27.29% in August, although they edged down from the previous month.
For businesses and households, therefore, the question is not simply whether inflation is falling. It is also whether borrowing conditions remain tighter than necessary for an economy where inflation is now within the target band.
What does the model say?
The Nsembe policy-rate model combines a Taylor Rule framework with machine-learning estimates.
Its latest signals are:
- Taylor Rule: 13.78%
- Ridge Regression, three-month outlook: 13.16%
- Six-month model projection: 13.04%
- Blended signal: 13.47%
A separate classification model assigns probabilities of 41% to a cut, 30% to a hold and 29% to a hike over the next three months.
These figures should not be read as the Bank of Zambia's own probabilities. They are outputs from an independent model using historical macroeconomic relationships.
So what should we watch for?
The key question for Wednesday is whether the Bank considers the decline in inflation and relatively contained exchange-rate pressure sufficient to justify easing, or whether it prefers to keep the policy rate unchanged while watching the broader macroeconomic picture.
The model itself does not point to a dramatic adjustment. Its estimates cluster close to the current 13.25% rate.
That makes the size — and direction — of any move more important than the headline debate about whether rates are simply "high" or "low".
For borrowers, a cut could eventually reduce the cost of credit. For savers and holders of fixed-income instruments, however, lower policy rates can reduce returns on some interest-bearing assets.
The Bank will ultimately weigh these competing effects alongside inflation, exchange-rate stability, financial conditions, fiscal developments and external risks.
For now, the data suggests a policy rate that is close to where the models think it should be — with a modest easing signal emerging as inflation moves further inside the target range.
Model estimates by Nsembe Technologies, using 161 monthly observations from January 2013 to August 2026. The analysis is an independent analytical model and does not represent the Bank of Zambia's forecast or policy position.
