Caleb M Fundanga: Third quarter 2010 media briefing Presented by Dr Caleb M Fundanga, Governor of the Bank of Zambia, Lusaka, 8 November 2010. *  *  *  Executive summary This brief examines monetary policy implementation and its outcomes in the third quarter of 2010. The brief also reviews other economic and financial sector developments. In the conclusion, it provides an inflation outlook for the fourth quarter of 2010. Monetary policy The focus of monetary policy during the third quarter of 2010 continued to be the achievement of the end-year annual inflation target of 8.0%. Consistent with this inflation outturn, annual overall inflation was programmed at 7.3% for end-September 2010. To achieve this, the Bank of Zambia utilised largely Open Market Operations and Government securities auctioning to maintain reserve money within the programmed growth path. This was to be complemented by prudent fiscal management. Inflation Quarterly overall inflation increased to 1.6% in September 2010 from the 1.0% recorded in June 2010, but was slightly lower than the 1.7% recorded in the third quarter of 2009. This outturn was mainly attributed to the rise in food inflation to –0.1% from the –1.7% recorded in the previous quarter, as non-food inflation slowed down to 3.2% from 3.7% during the same period. However, the annual overall inflation rate was largely unchanged at 7.7% in September 2010 compared to the 7.8% recorded in June 2010, but was above the projected 7.3% for the period.
It shed off 1.3% value against the euro and depreciated by 1.9% vis-à-vis the rand ending the quarter at an average of € and  8  Lusaka, Livingstone, Mfuwe and Ndola. 9  South Luangwa, Mosi-oa-Tunya, Lower Zambezi, Kafue, North Luangwa, Blue Lagoon. BIS Review 148/2010  9  K677.45/ZAR, respectively. The rate of depreciation against the pound sterling was relatively lower at 0.6% with the Kwacha trading at £ With regard to the volume of foreign exchange transactions, a total of $ million was exchanged in the domestic interbank market. From the rest of the market, commercial banks purchased a net of $ million compared to net sales of $ million the previous quarter. Similarly banks made net purchases of € million Euros during the review period. Conversely, banks’ net sales of the South African rand amounted to ZAR729.3 million, higher than ZAR645.3 million recorded in the second quarter. Transactions involving the pound sterling followed a similar trend, with commercial banks recording net sales of ₤2.5 million depicting a reduction over the previous quarter’s net sales of ₤1.7 million. Balance of payments Preliminary data show that Zambia’s overall balance of payments (BoP) recorded a surplus of US $ million during the third quarter of 2010 compared to a deficit of US $ million in the previous quarter. This was driven by the improvement in the performance of both the current account and the capital and financial account balances.