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Chibamba explains kwacha appreciationBy Diggers Correspondent on 24 Jun 2019
Economist Chibamba Kanyama says the kwacha’s appreciation in recent days can partly be explained by some market players who went into “panic mode” by offloading more dollars back onto the local market after realising the local unit had stopped depreciating.
The kwacha has appreciated below the K13 per dollar mark for the first time in around two months, trading at an average K12.91 and K12.96 per dollar for bid and offer, respectively, by the end of last week, according to the Bank of Zambia.
The local unit’s continued rebounding against the greenback meant it gained an impressive 1.54 per cent by mid-last week, which was at its strongest in close to two months, according to FNB Zambia’s daily treasury newsletter.
In an interview, Kanyama, however, explained that the kwacha’s appreciation could partly be explained by some market players, who went into “panic mode”.
He equally explained that the kwacha’s performance was likely to remain volatile owing to Zambia’s high debt servicing demands, Sales Tax uncertainty, lower than expected copper production in the first half of the year and sentiment associated with the controversial liquidation of Konkola Copper Mines (KCM) Plc.
“Whenever there is uncertainty to a currency towards one direction, in this case the loss of value for the kwacha, those with dollars will accumulate more for speculative purposes. There are those who had predicted the kwacha fall would be as high as K20/dollar by July. They kept accumulating and holding with the hope of cashing in at some point in future. Looks like this is not happening and some are in panic mode and this may explain the slightly steep appreciation of the kwacha in recent days,” Kanyama told News Diggers! in an interview.
“There’s other things that happened at the time the kwacha was hit hard: most multinationals were remitting dividends for end of March financial year; oil importers were very active at the time and given the announcement by the (Finance) Minister for Sales Tax kicking in July 1, a number of companies were very active in the market securing the dollar to flood their warehouses ahead of the Sales Tax introduction.”
He added that the Bank of Zambia’s (BoZ) increased monetary policy rate by 50 basis points last month had inspired investor confidence despite its consequent impact on commercial bank interest rates.
“Liquidity has somewhat reduced and as a result, impacted in the demand for the US dollar and other tradable currencies. The net impact has been an interest by portfolio investors to smell coffee in the Zambian market and it’s very likely the next government securities’ auctions will be well-subscribed by international investors,” observed Kanyama.
“Those with maturities will have less appetite to cash in, and the more foreign portfolio investors we have in response to the policy rate hike, the better for the exchange rate stability.”
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