UPDATE 2-Zambia raises key rate as inflation outlook deteriorates

(Adds reason for decision and bank comments in paragraphs 1, 4-6)

By Chris Mfula

LUSAKA, Feb 14 (Reuters) - Zambia's central bank raised its benchmark lending rate for the fifth meeting in a row, it said on Wednesday, citing a further deterioration in the inflation outlook.

The bank raised its policy rate by 150 basis points to 12.5% .

Inflation in the southern African country rose to 13.2% year-on-year in January from 13.1% in December, moving further away from the bank's 6%-8% target band.

Inflation is expected to average 12.5% this year, Bank of Zambia Governor Denny Kalyalya told reporters.

"The increase in the policy rate is, therefore, aimed at steering inflation to the target band," he said.

Rising inflation is mainly the result of the persistent depreciation of the local kwacha currency and the effects of bad weather on food prices, the central bank said in its latest monetary policy statement.

The kwacha has set repeated record lows against the U.S. dollar since November last year, dragged lower by factors including delays in restructuring the country's debt and constrained foreign-currency inflows. (Reporting by Chris Mfula; Writing by Nellie Peyton; Editing by Alexander Winning and Barbara Lewis)