Zambia’s central bank will not intervene in the foreign exchange market to defend the kwacha, its governor said on state radio on Thursday after the currency fell more than 5 percent to the dollar.
The local currency hit a record low of 9.9000 to the greenback as investors fretted over poor electricity supply in Africa’s number two copper producer and a weaker global prices for the metal.
The kwacha would remain under pressure as long as demand for copper remained low, governor Denny Kalyalya said, adding the regulator would not intervene to support the embattled currency.
“It is very clear what our policy is, we are going to maintain a flexible exchange rate,” Kalyalya said.
“China for us is critical because much of our export is copper, which ends up in China,” the Bank of Zambia governor said, calling for measures to diversify the economy from copper to protect the currency from external shocks.
The central bank’s failure to intervene and stem the kwacha’s slide had triggered panic dollar demand, analysts said.
“These thin conditions would have been a more ideal occasion for BoZ piecemeal intervention to try keep a lid on volatility,” ETM Analytics’s Gareth Brickman said in a note.
Peter Sitamulaho, an analyst at the local Bonds and Derivatives Exchange mining exporters, who supply the bulk of Zambia’s foreign currency, were holding back their dollars to build up their own reserves.
In addition to weak global prices, Zambian mines have also been by a power crunch, with one copper producer, China’s NFC Mining, shutting down some of its operations at local operations as a result, according to a union. (Reporting by Chris Mfula; Writing by Stella Mapenzauswa; Editing by James Macharia)