THE kwacha has continued to sharply depreciate and is expected to hit K19.50 per dollar owing to continued high demand for the greenback on the local market, compounded with little supply.
According to financial market players, the kwacha maintained a weak position, depreciating to crash through the K19.00 per dollar mark last Friday for the second time in the country’s history, continuing its depreciating trend to now average K19.45 per dollar from averaging around K18.60 per dollar just 10 days ago, a further slide from K18.13 per dollar at the start of the third quarter.
The kwacha’s huge losses mean that the local currency has depreciated by over six per cent since the beginning of last month, while losing around 4.4 per cent in value from its trading position 10 days ago.
This is the second time the local currency depreciated to hit these levels in Zambia’s history after hitting the K19 per dollar mark in early April.
According to FNB, the kwacha is expected to continue losing value on account of heightened dollar demand.
“With some US dollar demand orders still pending, our initial expectation is to see further easing of the local unit in today’s (Monday’s) session. Trades north of the K19.50 mark are possible,” FNB Zambia stated in its daily market update.
“Having stabilised at around K18.20 for the past few months, the USD/ZMW finally broke the K19.00 psychological barrier last week. The local unit lost c3.5 per cent through the course of the week to close at K19.20 from an opening of K18.59. Volumes were uncharacteristically low, particularly on the LHS (Left-Hand Side). In a surprising move, President Edgar Lungu relieved the Bank of Zambia governor Dr Denny Kalyalya of his duties on Saturday, August 22, and replaced him with the former Deputy Finance Minister Mr Christopher Mvunga. We will await further changes in the Monetary Policy framework going forward.”
And Cavmont Bank explained that the dollar demand emanated from the agricultural and energy sectors.
“The past week has seen the kwacha steadily come under pressure following an increase in demand from the agriculture and energy sector,” stated Cavmont.
Commercial banks, such as Zanaco and FNB Zambia quoted the local currency trading at an average K19.06 and K19.43 per dollar; K19.09 and K19.45 per dollar for bid and offer, respectively, by close of business, Monday.
Most market experts predicted that the kwacha was likely to continue its free-fall as government continues to grapple with a huge fiscal deficit and heavy public debt burden, which continues to put pressure on the local currency, while Dr Kalyalya’s abrupt dismissal from the central bank would heighten speculation on the local economy and shrink investor confidence.