Well ahead of Christmas Day the copper currency rallied an impressive 2.5% to close trading at 12.97/13.15 for a unit of dollar. Post Christmas into Boxing Day on 26 December, in addition to the energy regulator the Energy Regulation Board (ERB) boxing Zambian consumers with a brace of energy hikes in fuel and electricity prices, the Kwacha crept weaker to 13.85/13.95 levels as dollar demand for energy funding resurfaced in the market.
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“The market is generally short dollars as petroleum dealers prepare for crude purchases,” a trader at an unnamed bank said in a telephone interview.
Currency risks have heightened in the last quarter of 2019 given sanguine demand for external debt service to meet coupon payments on dollar bonds, asset sell off pressure, crude oil and electricity imports, agriculture and festivity spend funding needs which the initial November monetary tightening failed to tame but for the December cash reserves requirement hike.
Despite the energy funding foreign currency demand, most corporate remain on break to return mid January at which activity pick up will fuel exchange rate pressure. Zambia grapples with a weak strategic reserve position at $1.4billion which it intends to shore up with interventions to include gold sales directly to the central bank by the mineral investment holding vehicle ZCCM-IH and the mines paying mineral royalty taxes directly in dollars to the central bank.
The Kwacha Arbitrageur
