By Charisa Mulenga
As we wrap up 2025, Zambia’s economy tells a story of steady improvement. It hasn’t been a year without its challenges, but we’ve also seen encouraging progress, especially in the Kwacha’s performance, inflation trends, and the direction of monetary policy.
Inflation: Gradual Relief for Households and Businesses
Inflation started the year on the higher side, sitting above 16%, which kept pressure on the cost of living and business operations. But the tone shifted as the year progressed. A strong harvest, better food supply, more stable fuel prices, and a firmer Kwacha all worked together to slow price increases. By November, headline inflation dropped to 10.9%, its lowest level in over two years.
While still above the Bank of Zambia’s target range of 6–8%, the downward trend brought welcome relief across the economy.
Kwacha Performance: Strength After Volatility
Over 2025, the Kwacha experienced quite a swing. Early in the year (January) the exchange rate stood near 1 USD = 27.9 ZMW, and at its weakest point it reached roughly 1 USD = 28.94 ZMW in March, a challenging period for importers. As the year progressed, the Kwacha strengthened, and by late 2025 it had recovered to around 1 USD = 22.98 ZMW. On average for the year, the rate was about 1 USD = 25.48 ZMW, showing the currency had overall gained ground compared with its mid-year weakness.
This downward trend in USD/ZMW (a stronger Kwacha) helped ease import costs and contribute to moderating inflation, offering much-needed relief for businesses relying on imported inputs and for consumers buying imported goods.
Monetary Policy: From Tightening to Strategic Easing
The Monetary Policy Committee (MPC) began the year with a firm stance aimed at fighting inflation. In February 2025, the policy rate was raised by 50 basis points to 14.5% to stabilise price growth and anchor expectations.
As inflation began to cool mid‑year, the MPC maintained this position, balancing caution with stability. By November 2025, with inflation easing significantly, the MPC made its first rate cut since 2020, lowering the policy rate to 14.25%. This signalled confidence in the improving economic outlook while still keeping monetary conditions tight enough to guide inflation downward.
Looking Ahead to 2026
The developments of 2025 offer a promising foundation for the year ahead:
- A stronger Kwacha supports lower import costs and improves forecasting for businesses.
- Moderating inflation eases cost pressures and boosts consumer confidence.
- A cautiously lower policy rate could encourage investment and borrowing.
While risks remain, particularly around keeping inflation within the target band, the trajectory is encouraging. If current momentum holds, Zambia is well‑positioned for a more stable, growth‑friendly 2026.
In conclusion, 2025 has been a year of steady recovery and macroeconomic alignment. With strengthening fundamentals and carefully calibrated monetary policy, the Zambian economy enters 2026 with renewed hope and a stronger platform for sustainable growth.