ZM Interest Rate Decision: November 2025 Analysis and Macro Outlook
The Bank of Zambia’s latest interest rate decision, released on November 12, 2025, saw the policy rate trimmed slightly to 14.25%, down from 14.50% in August. This move, marginally below market expectations of 14.00%, signals a cautious easing stance amid mixed macroeconomic signals. Drawing on the Sigmanomics database and historical context, this report dissects the implications of this decision across Zambia’s economic landscape, financial markets, and geopolitical environment.
Table of Contents
The Bank of Zambia’s November 2025 interest rate cut to 14.25% marks the first reduction since February 2024, when the rate was last raised to 14.50%. This decision reflects a balancing act between persistent inflationary pressures and slowing economic growth. The rate remains elevated compared to the 11% level recorded in late 2023, underscoring ongoing monetary tightening over the past two years.
Drivers this month
- Inflation remains sticky at 9.80% YoY, above the central bank’s 6-8% target range.
- GDP growth slowed to 2.10% annualized in Q3 2025, down from 3.50% in Q2.
- Currency pressures eased slightly, with the ZMW stabilizing against the USD.
Policy pulse
The 25 basis point cut positions the policy rate just below the 14.50% peak seen in early 2025 but still significantly above the 12.50% level from February 2024. This suggests a cautious pivot toward easing, contingent on inflation trends and external risks.
Market lens
Immediate reaction: The ZMW/USD pair appreciated 0.30% within the first hour post-announcement, while 2-year government bond yields fell by 15 basis points, reflecting relief over reduced tightening risks.
Core macroeconomic indicators provide essential context for the interest rate decision. Inflation remains a key concern, with the latest CPI reading at 9.80% YoY, down marginally from 10.10% in August but still above the central bank’s target. Meanwhile, GDP growth has decelerated to 2.10% in Q3 2025, signaling cooling domestic demand and external headwinds.
Inflation trends
- November 2025 CPI: 9.80% YoY (August 2025: 10.10%, November 2024: 8.50%)
- Core inflation steady at 7.20% YoY, indicating persistent underlying price pressures.
Growth and employment
- Q3 2025 GDP growth: 2.10% annualized (Q2 2025: 3.50%, Q3 2024: 3.00%)
- Unemployment rate steady at 11.30%, unchanged from previous quarter.
Fiscal policy & government budget
The government’s fiscal stance remains moderately expansionary, with a budget deficit of 5.20% of GDP projected for 2025, slightly wider than the 4.80% deficit in 2024. Increased infrastructure spending aims to support growth but adds pressure on debt sustainability.
This chart reveals a trend of tightening monetary policy over the past two years, now entering a phase of cautious easing. The 25 basis point cut suggests the central bank’s confidence in stabilizing inflation but highlights ongoing risks from external shocks and fiscal pressures.
Market lens
Immediate reaction: ZMW strengthened modestly post-decision, with bond yields declining, indicating market approval of the measured easing. Breakeven inflation rates for 2-year horizons fell by 10 basis points, signaling expectations of slower inflation ahead.
Looking ahead, Zambia’s monetary policy trajectory will hinge on inflation dynamics, fiscal discipline, and external risks. Three scenarios emerge:
- Bullish (30% probability): Inflation falls below 7% by mid-2026, allowing further rate cuts to 12.50%, boosting growth above 4%.
- Base (50% probability): Inflation moderates slowly, hovering near 8%, with rates steady around 14%, supporting moderate growth near 3%.
- Bearish (20% probability): External shocks or fiscal slippage push inflation above 10%, forcing rate hikes back to 15%+, stalling growth below 2%.
External shocks & geopolitical risks
Commodity price volatility and regional political tensions remain key downside risks. Zambia’s copper exports expose it to global demand swings, while geopolitical instability in neighboring countries could disrupt trade and investment.
Structural & long-run trends
Long-term challenges include diversifying the economy beyond mining, improving fiscal governance, and enhancing financial market depth. Monetary policy will need to adapt to these structural shifts to sustain growth and stability.
The Bank of Zambia’s November 2025 interest rate cut to 14.25% reflects a nuanced response to persistent inflation and slowing growth. While the easing move is modest, it signals a potential pivot toward supporting economic activity amid stabilizing price pressures. However, risks from fiscal deficits, external shocks, and structural constraints warrant vigilance. Market reactions suggest cautious optimism, but the central bank’s path remains data-dependent.
Key Markets Likely to React to Interest Rate Decision
Zambia’s interest rate decision typically influences local currency strength, bond yields, and equity market sentiment. The following tradable symbols have shown historical correlation with monetary policy shifts:
- ZMWUSD – The Zambian kwacha’s exchange rate against the US dollar often reacts sharply to rate changes.
- LUN – Lusaka Stock Exchange index, sensitive to domestic monetary policy.
- BTCUSD – Bitcoin’s price can reflect broader risk sentiment shifts linked to emerging market policies.
- USDCZK – Czech koruna’s USD pair, included as a regional emerging market comparator.
- MTN – MTN Group stock, a major telecom operator in Zambia, sensitive to economic conditions.
Indicator vs. ZMWUSD Since 2020
Since 2020, Zambia’s policy rate and the ZMWUSD exchange rate have shown a strong inverse correlation. Periods of rate hikes corresponded with ZMW appreciation, while rate cuts often led to depreciation. The recent 25 basis point cut coincided with a 0.30% ZMW appreciation, suggesting market confidence in controlled inflation and stable monetary policy.
FAQs
- What is the significance of Zambia’s latest interest rate decision?
- The 14.25% rate cut signals a cautious easing amid persistent inflation and slowing growth, balancing price stability with economic support.
- How does this decision compare to past monetary policy moves?
- This is the first rate reduction since February 2024, following a series of hikes from 11% in late 2023 to 14.50% in early 2025.
- What are the main risks facing Zambia’s monetary policy outlook?
- Key risks include external commodity shocks, fiscal deficits, and regional geopolitical tensions that could derail inflation control and growth.
Takeaway: Zambia’s modest rate cut reflects a delicate balancing act amid persistent inflation and growth challenges, with future policy contingent on evolving macro and external conditions.
This has been drafted with AI assistance and then thoroughly reviewed, refined, and approved by our human editorial team to ensure accuracy, and originality.
The November 2025 interest rate cut to 14.25% contrasts with the steady 14.50% rate maintained since February 2025. This marks a 25 basis point reduction, the first easing move in nearly a year. Compared to the 12-month average rate of 13.60%, the current rate remains elevated, reflecting the central bank’s cautious approach.
Historical data from the Sigmanomics database shows a steady rise from 11% in November 2023 to a peak of 14.50% in early 2025, driven by inflationary pressures and currency volatility. The recent cut signals a tentative shift as inflation shows signs of moderation.