Zambian kwacha: Another day, another drubbing on Monday Nov 9th

Monday Nov 9th – The Zambian kwacha is getting crushed yet again this morning (Monday Nov 9th), with the dollar ploughing 4.5 per cent higher against the struggling currency after a chunky drop in Chinese trade.

Fresh data show China’s imports fell 18.8 per cent on the year in October, adding yet more pressure on the copper-dependent kwacha, writes Joel Lewin.

The currency has taken a heavy beating this year as China’s economy slows and copper prices tumble.

Today the greenback has jumped 4.5 per cent against the Zambian currency to a new record high of 13.62 kwacha per dollar, its fourth largest hit of the year.

That takes the kwacha’s losses over the last three months to 75 per cent.

Last week’s bumper 3 percentage point interest rate rise in Zambia does not seem to be shielding the currency.

Writes Bank of America Merrill Lynch:

The Kwacha remains under pressure, which will feed through to inflation. [The central bank estimates] that a 1% currency depreciation leads to a 0.2% increase in CPI. October CPI recently spiked to 14.3% yoy. Though the Bank of Zambia mentioned the increases in electricity tariffs as part of the cause, the biggest culprit was the large depreciation in the Kwacha seen over the past few months.

Overall, lower mining activity, tight monetary policy, high inflation and continued power shortages will act as a drag on GDP growth which we expect at 3.5% in 2016 vs the government target of 5.0%.

Chart courtesy of Bloomberg.