Zambia warns speculators the kwacha is on the up

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The Bank of Zambia (BoZ) yesterday warned currency speculators that the hard currency price of the Zambian kwacha is close to bottoming out, saying it expects the currency to appreciate soon in line with the country’s improving economic fundamentals.

Low copper prices, which the BoZ said have averaged around $6,500 per tonne since the start of 2014, have played a large part in the drop in the kwacha’s value. They have now recovered to almost $7,000, however.

The Zambian economy is set for 7% growth this year according to the central bank, while the annual inflation target remains at 6.5%. In order to hit the target, the BoZ has tightened monetary policy through an increase in the statutory reserve ratio from 8% to 14% in March 2014, and an interest rate hike from 10.25% to 12% in April.

The BoZ does “prudently” intervene in foreign exchange markets in order to smooth volatility and build its foreign exchange reserves, it said. Its foreign exchange reserve position has “improved significantly” this year, it said in the statement.

It therefore warned citizens “to desist from taking any speculative positions on the kwacha”, as that could result in “heavy financial losses… when the kwacha reverts to an equilibrium path that is consistent with the economic fundamentals”.

Central Banking