Kwacha flirts with 6 month lows as Dollar demands ebbs higher

Ebbing dollar demand in Africa’s copper hotspot has weighed its currency weaker to record lows. The Kwacha closed trading on 12 November at a 6 months low, crossing the psychological mark of 14 for a unit of the greenback. The copper currency has been on a losing streak for over a month from levels of 13.05 to current record lows.

Given the rise in foreign currency demand to meet debt service, fund energy imports and amass reserves to improve import cover, the Kwacha has come under pressure. With very little ammunition for its central bank to intervene, the copper currency has been susceptible to one way swings.

Zambia’s foreign exchange reserves have declined to $1.45 billion making it very costly to intervene as the central bank risks depleting import cover.

Read: Hiking rates to curb a Kwacha slide versus private sector growth – Pre MPC Analysis

However this trend is a deja vus of the week leading to the 21 – 22 May 2019 rate decision meeting which was curbed by central bank intervention after offloading dollars onto the open market the week of the MPC meeting. With currency weakness analysts forecast increased risks to consumer price index adding to already existing energy price risks that could see Zambia’s double digit inflation balloon further.

All eyes are on the Bank of Zambia’s policy action next week 18-19 when it will hold its last monetary policy meeting whose actions are expected to include curbing a currency slide.

The Kwacha Arbitrageur