Africa’s second largest copper producer has a plethora of events ranging from a rate decision announcement on Wednesday, treasury bill sale on Thursday and a weak Kwacha throughout the week.
BENCHMARK INTEREST RATE DECISION
Amidst rising inflation pressures the central bank’s monetary policy committee will this Wednesday announce its benchmark interest rate. The last session hiked rates 25 basis points to 9.5%.m Cumulatively the rate hike is 50 bps while the cash reserve ratio was adjusted 250bps upwards to 11.5% for both local and foreign currency a fortnight to the February meeting. This action was aimed at curbing a currency slide. With projected headwinds in the agribusiness and energy sectors on the back of environmental threats price pressures are forecast to persist and could keep inflation outside the 6-8% BOZ target band.
READ ALSO: Zambia’s Central Bank likely to Keep Benchmark Rate Unchanged Despite Price Pressures
Zambia is in the labyrinth of a debt restructure with memoranda of understanding awaited whose success a key determinant of the private debt reorganization process. Kwacha paper continue to be positive carry for most offshores looking for a home for their excess liquidity. The last two last fixed income sale saw strong interest in long dated assets, a sign that the international community is taking a long term view on Zambia supported by the fiscal strides the red metal producer is taking through a successful $6.3 billion bilateral debt treatment.
While rising inflation may seem to be a trigger for another adjustment, Zambia’s headwinds could keep the rate on holds to support ailing growth for which the MinFin downgraded to 2.7% in its Medium Term Expenditure Framework.
KWACHA T- BILL SALE
After strong demand for Kwacha paper on Friday, August 18 in the eighth bond sale of the year, the Bank of Zambia will seek to raise K2 billion in a treasury bill auction. One year bills continue to see interest given the current yields of 16.0511% providing decent compensation spread for government risk. Zambia was last week upgraded to Caa3 by Moody’s rating agency from Ca on its local currency issuer risk rating.
READ ALSO: Offshores, Bullish on Zambia’s Long Term Outlook, Buy 10 – 15 year Govies
With increasing strides made in the area of debt restructure, Zambia’s outlook is on the brink of a turnaround and as such has become an attractive investment destination. Analysts forecast purchasing power in the Thursday debt sale with skew in the 1 year.
KWACHA BEARS EXPECTED TO PERSIST
The copper currency is expected to trade on the back foot trading above K19.300 for a unit of dollar as supply continues be outwit by demand. The local unit has extended losses and crossed the K19.500 psychological barrier last week, a bearish streak that could potentially reverse should offshores seek to, in the unusual event, participate in this Thursdays debt sale. However this is unlikely as most were seen in last Fridays bond sale. Last week the copper currency crossed K19.500 boosting confidence among short term Kwacha bears and potentially paving the way for an upward move to K20.275, Dean Onyambu an Executive Head Trading at Opportunik Global Fund had said.
Not much support is expected for the Kwacha but as new barriers are broken, central bank intervention is highly likely.
The Kwacha Arbitrageur