LUSAKA (Reuters) – Zambia’s kwacha weakened 1.5 percent against the dollar to a new record low on Thursday after a worsening foreign currency crunch fuelled panic demand in Africa’s second-biggest copper producer.
The local unit fell to 7.6500 to the greenback, extending its losses so far this year to nearly 20 percent, according to Thomson Reuters data.
“There is panic buying because there are no dollar inflows. At these levels we see the central bank intervening,” said John Mupiye, a trader at Banc ABC.
Zambian President Edgar Lungu on Wednesday urged newly appointed central bank governor, Denny Kalyalya, to use his experience to try to halt the kwacha’s slide.
The currency has tumbled more than 30 percent since the government rebased it by loping off three zeros at the start of 2013. Ratings agency Fitch last week warned that the southern African nation was increasingly vulnerable to external shocks, due to lower copper prices.
While the kwacha appears oversold at current levels, as a commodity currency it remains vulnerable to sluggish global growth, Rand Merchant Bank said in a note.
“The primary concern at this stage is the enduring struggle between the mining industry and government which continues to mar sentiment,” it added, referring to a row over higher mining royalties with foreign firms such as Glencore and Vedanta Resources.
“The central bank has been largely absent from the foreign exchange market due to limited means with which to intervene, which means that sustained inflows are required for the kwacha to stage a meaningful pullback.”
(Bloomberg) — Zambia’s kwacha extended declines for an 11th day to a record low, falling by the most in a month.
The kwacha retreated 1.7 percent to trade at 7.591 per dollar at 5.24 p.m. in Lusaka, the capital, after dropping as much as 3.8 percent. The currency of Africa’s second-biggest copper producer has depreciated more than 16 percent this year, making it the continent’s worst performer, according to data compiled by Bloomberg.
Zambian President Edgar Lungu swore in Denny Kalyalya as central bank governor on Wednesday, telling him to “find the magic wand” to resuscitate the flagging currency. The kwacha’s fall has been driven by a decline in copper prices and concerns the president may not be healthy enough to perform his role.
“There could be some element of speculation in there or panic as well,” Ridle Markus, an Africa strategist at Barclays Africa Group Ltd., said by phone from Johannesburg. “If you think the kwacha is going to fall further, you might want to cover yourself. That creates a vicious cycle.”
While broader dollar strength has had an impact on the kwacha and other emerging market currencies, Zambia has its own peculiarities that the government must tackle to restore stability, according to Irmgard Erasmus, a fixed-income analyst with NKC Independent Economists, in Paarl, near Cape Town.
These include “increasing policy transparency, quickening the pace of fiscal consolidation, and returning the goods trade position to health,” Erasmus said in an e-mailed note.
Kalyalya started the job as the government tries to resolve a dispute over a new mining tax system for the industry that earns 70 percent of the country’s foreign exchange.
A team from the International Monetary Fund arrived in Lusaka on Thursday to evaluate the economy. Fitch Ratings on March 13 downgraded its outlook for Zambia’s sovereign debt to “stable” from “positive,” while maintaining a B rating.
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] John Viljoen, Karl Maier