A study of the Effectiveness of the Monetary Policy Rate as a Tool of Inflation Control in Zambia

Abstract

The importance of a stable and favorable rate of inflation cannot be over emphasized. The main aim of the study was to assess the effectiveness of the Bank of Zambia Policy Rate in maintaining favorable inflation levels in Zambia.

This study investigated the relationship between the policy rate and the rate of inflation in the country. This study included the analysis of specific economic data for the period April 2012 to December 2014.

The study involved the review Bank of Zambia fortnightly reports for the stated period; Monetary Policy Rate, Inflation Rate and Exchange Statistics were extracted from the reports and two models were built to mimic the period before the implementation of the policy rate and the period after. Exchange rates were used as a control variable.

The interpretation of the models showed that the policy rate had little or no impact on the rate of inflation as the variations in the rate of inflation due to those in the policy rate were already explained by variations in exchange rates. The study further proposed recommendations to improve the management of inflation.

Keywords: Monetary policy rate, Inflation control, Monetary Policy