The kwacha marginally depreciated against major currency convertibles to remain above the K12 per dollar barrier, while maintaining strong volatility following Zambia’s credit rating downgrade.
And market players say the local currency’s trading has been characterised by high levels of uncertainty and heightened speculation as economic conditions remain poor.
According to financial market players, the kwacha marginally depreciated against major currency convertibles to hit highs of K12.55 per dollar by mid-October, whilst maintaining unusual volatility.
This comes despite the deadline for provisional taxes due this month where corporates are expected to offload dollars onto the local financial market to help shore up the kwacha.
Data, however, shows that the local currency depreciated to hit K12.55 per dollar as news of Fitch’s downgrading of Zambia’s credit rating to ‘B –’ filtered through the market.
Fitch Ratings downgraded Zambia’s credit rating, Thursday, to ‘B -’ from ‘B’, and maintained the country’s economic outlook to negative, mainly triggered by government’s substantial upward revision in the budget deficit targets.
FNB Zambia stated that the country’s credit downgrade saw the kwacha tumble to weaker trading levels of K12.55 and K12.60 per dollar for bid and offer respectively.
“Yesterday’s [Thursday’s] trading opened at K12.25/K12.30. The market then surged with the rate reaching a high of K12.55/K12.60 in response to Fitch’s downgrading Zambia from its currency issuer default rating B to B – with a negative outlook,” FNB stated in a daily treasury newsletter released, Friday.
“However, the dollar supply in the market eventually brought USD/ZMW back to K12.25/K12.30.”
Cavmont also concurred in its market report that the credit downgrade negatively affected the local currency’s performance.
“The local unit’s movement was mainly driven by negative market sentiment following the downgrade of Zambia’s credit rating by Fitch to B -,” stated Cavmont
And a check around several bureaus in Lusaka found the kwacha had maintained its weak trading levels of between a range of K12.10 to K12.40.
The kwacha traded at K12.10 and K12.30 per dollar for bid and offer at Ace-FX Bureau by lunchtime, Friday, while at Golden Coin Bureau on Cairo Road quoted the local currency at K12.16 and K12.40, with Unifinance quoting the kwacha at K12.18 and K12.40 per dollar for bid and offer respectively.
Ace-FX Bureau director of finance Brian Sakala noted that the kwacha’s volatility has grown in intensity in the past few days.
“Actually, this week has been very volatile! Because on Monday, our opening was around K11.60, but, on the same day it shot to almost K12.40. Tuesday, it reduced again, it fluctuated, it came down; we opened at K12.30, we closed at around K12.37 so there was quite an increase going up,” Sakala narrated in an interview in Lusaka.
“So, there is a lot of volatility in the market that’s why there’s uncertainty amongst the customers.”
He also confirmed that the kwacha’s sudden fall was triggered following Fitch’s credit downgrade.
“Definitely! At the moment, I will tell you the investor confidence in Zambia is low. Even this downgrading now is giving us a lot of problems,” disclosed Sakala.