Zambia’s central bank said the drop in the kwacha to near the weakest levels in 4 1/2 years against the dollar is temporary and that the currency of Africa’s largest copper producer is set to rebound.
The kwacha will be in “equilibrium” at a rate of 5.30 to 5.40 per dollar, Emmanuel Pamu, financial markets director at the central bank, said in an interview in Lusaka yesterday. The kwacha has retreated 4.1 percent over the past month, falling to 5.56 per dollar on Nov. 19, the lowest close since May 2009. It was unchanged at 5.5050 per dollar as of 7:17 a.m. in Lusaka, the capital, after declining 0.2 percent yesterday.
The currency’s slide is a “random walk,” Pamu said. “It doesn’t concern us too much. We expect some correction.”
African currencies from the Kenyan shilling and Nigerian naira to the South African rand and Malawi kwacha have weakened against the dollar this year partly as the Federal Reserveconsiders an end to stimulus that drove demand for emerging-market assets. A 12 percent decrease this year in the price of copper, which accounted for 82 percent of Zambian exports in September, has compounded the kwacha’s fall, Pamu said.
Fitch Ratings last month lowered Zambia one step to B, five levels below investment grade andStandard & Poor’s downgraded its outlook to negative, retaining its B+ rating. Yields on the nation’s $750 million of bonds have climbed 224 basis points, or 2.24 percentage points, to 7.4 percent since being issued in September 2012 compared with an average 133 basis-point increase for dollar-denominated African debt, JPMorgan Chase & Co. indexes show.
The nation’s budget deficit is forecast to swell to 8.5 percent of gross domestic product this year, compared with an earlier estimate of 4.3 percent, as funding needs are pushed higher bygovernment spending on wages and subsidies. A weaker currency pushes up prices in the land-locked nation that imports everything from oil to breakfast cereal.