(Bloomberg) — Zambia’s kwacha weakened beyond 7 per dollar for the first time in eight months as the central bank’s foreign-currency reserves dwindle amid falling copper prices.
The currency of Africa’s second-biggest copper producer retreated for an eighth straight session, its longest stretch of losses since October, to trade as low as 7.0322 per dollar in Lusaka, the capital. It pared losses to trade 2.7 percent weaker at 6.9586 per dollar as of 12:04 p.m. in Lusaka, the capital. Copper prices fell 1.7 percent in London on Tuesday to close at $5,649.50 per metric ton.
“There has been a significant reduction in the supply of dollars from both domestic and foreign players compared to the demand,” First National Bank Zambia Ltd., the Zambian unit of FirstRand Bank Ltd., said in an e-mailed note to clients. “For now, only intervention by the central bank will help the kwacha recoup its losses. Momentum remains toward” further weakness, it said.
The kwacha has depreciated 8.4 percent this year, the worst performance among 24 African currencies monitored by Bloomberg, amid an 8.6 percent drop in copper prices. Exports of the metal account for about four-fifths of Zambia’s foreign exchange earnings. The Bank of Zambia will struggle to boost its foreign-exchange reserves as a result, it said last week.
The central bank sold a net $148 million of foreign currency in the last quarter of 2014 to “support the market,” it said in its monetary policy statement. The bank had $3 billion in reserves at the end of 2014, down about 10 percent from three months earlier.
The falling kwacha will be the first challenge faced by Denny Kalyalya, who president Edgar Lungu appointed to replace Michael Gondwe as Bank of Zambia governor last week. Last year, the kwacha retreated to a record 7.2522.
The kwacha gained ground to trade as high as 6.005 per dollar in August after Gondwe raised interest rates to a record, lifted minimum statutory reserve ratios for lenders and put in place measures aimed at preventing currency speculation.
To contact the reporter on this story: Matthew Hill in Lusaka at [email protected]
To contact the editors responsible for this story: Antony Sguazzin at[email protected] Robert Brand, John Viljoen