Zambian kwacha hits record low on dollar demand

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foreign reserves
foreign reserves

Zambia’s kwacha hit a record low of 6.10 to the dollar on Monday, extending recent losses which the central bank blames on falling copper prices and foreign investor jitters at the prospect of monetary tightening by the U.S. Federal Reserve.

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Zambia’s central bank has said it will continue to intervene to stabilise the kwacha, in an attempt to a calm a foreign exchange market it previously described as gripped by panic.

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Analysts said government borrowing was also putting pressure on the currency of one of Africa’s leading copper producers.

“The large budget deficit, financed by borrowing from the banking system and planned external borrowing, is also fuelling high domestic and import demand, and probably contributing in this way to the depreciation,” a local think-tank, the Economics Association of Zambia, said in a statement.

Emerging market currencies have also been hit in recent months by a sell-off of risky assets triggered by the prospect of the U.S. Fed reducing its bond-buying programme, which has pumped liquidity into global markets.

On top of this, Zambia has had to contend with falling copper prices which dropped to near four-year lows last week as worries about China’s economic slowdown intensified. (Reporting by Chris Mfula; editing by Ed Stoddard)

Reuters

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