Ahead of the implementation of the cash reserve requirement, the Kwacha posted its strongest one day rally to close Friday 20 December below 13 for a unit of dollar. Having opened at levels of 14.3/14.25 the red metal currency was on a bullish streak hitting intraday highs of 13.4/13.45 levels last seen on October 10.

The currency bulls were supported by dollar conversions by miners seeking to fund festivity payroll obligations. Zambia’s mining companies are the largest suppliers of foreign exchange on the financial markets.

The copper currency has in a space of 2 weeks reversed losses by 15% after touching record lows of 15.77 per unit of dollar. The hiking of the cash reserve requirement by 400bps to 9% effective Monday 23 December was to cure a one way traffic in currency rout. The Kwacha rallied 5% to temporarily draw a line in the sand at 14.25-14.45 after which Friday 20 December shifted equilibrium back to below 13 for a dollar. It is however uncertain how sustainable this rally will be given the currency economic landscape.

Liquidity is nonetheless forecast to tighten next week as K1.7billion is mopped out of the financial system as the new statutory reserve ratio takes effect. Fitch earlier on Friday affirmed the copper producers long term issuer risk on its foreign currency rating at ‘CCC’.

The Kwacha Arbitrageur

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