Kwacha under renewed pressure

Dollar accounted for 89 percent of bank deposits and 95 percent of loans

THE Zambia Institute for Policy Analysis and Research (ZIPAR) predicts that the current developments in the global economy may continue to exert pressure on the local currency.
ZIPAR expects the Kwacha to depreciate to K7.29 against the United States (US) dollar over the next 12 months due to increased volatility in the exchange rate.
The institute notes the sudden appreciation of local unit immediately after the revocation of the statutory instruments (SIs) 33 and 55, increased volatility to 16 percent.
In a statement, issued  in Lusaka on Friday, ZIPAR researchers, Thulani Banda and Shebo Nalishebo said using the 16 percent volatility figure, the local unit is anticipated to trade between K5.28 and K7.2 in the next 12 months
“The Minister of Finance [Alexander Chikwanda] announced the revocation of SIs 33 of 2012 and 55 of 2013 [which were aimed at prohibiting the quoting in foreign currencies and monitoring foreign transaction] on March 21.  Markets reacted favourably to this news as depicted in the appreciation of the Kwacha on the same day as the two SIs were viewed as increasing the cost of doing business.
“However, this sudden appreciation increased volatility to 16 percent. Using this volatility figure, the Kwacha can be expected to fluctuate between K5.28  per dollar [K6.3-16 percent] and K7.29 per dollar [K6.29+16 percent] over the next twelve months,” the statement reads.
The researchers say the depreciation of the Kwacha will exacerbate inflationary pressures as imports of raw materials and consumer goods become more expensive.
Meanwhile, Standard Chartered Bank says Thursday’s trading witnessed the Kwacha market come under renewed strain from increased dollar demand.
The bank says the US dollar/Kwacha currency pair was around K6.3 and K 6.4 at close on the trading session on Thursday.

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