LUSAKA (The Business Telegraph): – The central bank in Africa’s second largest copper producer Zambia has moral suaded the market through a statement on developments in the foreign exchange markets. the red metal currency has come under immense pressure extending a losing streak that has seen the currency flirt with all time highs since the currency was rebased as sentiment dims and dollar demand widens.
An imbalanced forex market. In its press statement the central bank acknowledges the imbalances in the foreign exchange market exacerbated by lower mining currency sales while on the demand side the bank of Zambia flags agriculture inputs and petroleum demand as key drivers of pressure. The central bank also does highlight that exchange rate depreciation could breed inflation and as such would use all possible tools at its disposal to intervene and sterilize the market.
FISCAL BUDGET AND DIRECTION POST COVID, ANOTHER SENTIMENT DRIVER
The Zambian Kwacha trades at all time lows since the copper currency was rebased in 2012 as the central bank grapples with a decade low of reserves at $1.4billion. Some other sentiment drivers include the recent sudden shift in monetary policy at leadership level when Dr. Denny Kalyalya was replaced with Christopher Mvunga whose appointment awaits ratification by parliament. on 11 September, Republican President Dr. Edgar Lungu in a parliamentary address set the tone for a rebound in the economy post COVID era whose clarity will be backed by the awaited fiscal budget presentation of 25 September. The estimates of revenues and expenditure will provide direction for the Zambia economy with a confluence of stakeholders such as multilaterals, private sector and citizens seeking clarity on an array of issues ranging from fiscal consolidation to economic stimulus that will support 2021 rebound.
CENTRAL BANK INTERVENTIONS IN THE FX MARKETS TO DATE
The Bank of Zambia has with limited scope in the year intervened through revising its Interbank Foreign Exchange Market Framework – IFEM with measures such as a 15 percentage point crawling peg in extreme conditions, personal trader liability for excess pricing swings to appointment of forex brokers. Additionally the Zambian authorities earlier in the year requested for all mining taxes to be remitted in dollars in a quest to shore up foreign exchange reserves and to address the dollar supply to meet foreign currency obligations.
Despite the statement issued, the central bank leave the market with no clarity on what tools it will use for price stability at a time when COVID has dislocated traditional correlations and monetary policy remains expansionary to support growth which takes priority over inflation and currency depreciation. The Kwacha was trading from 19.700/20.020 in bid – offer at midday in the capital Lusaka.
The Kwacha Arbitrageur
