Troubled kwacha faces renewed pressure

THE kwacha is likely to come under further pressure in the short term in the absence of improved dollar inflows, says Cavmont Bank.

The kwacha has enjoyed some stability with relatively little volatility to trade at an average K10.95 per US dollar in December, but breached the K11.00 psychological barrier in the first week of January.

The local unit also failed to post any significant gains during the just-ended industrial break despite a slowdown in demand for the greenback by most importers owing to reduced inflows.

Cavmont Bank stated that the kwacha came under pressure against the US dollar on Friday following continued waning of supply from exporters, adding that the local currency is likely to come under further pressure and trade beyond K11.10 per dollar mark.

“In the absence of improved inflows, the local currency is likely to come under further pressure in the short term. The kwacha closed at K11.010/K11.030, K0.03 stronger than Thursday’s closing rate,” Cavmont stated in a market report released yesterday.

“On Friday, the kwacha came under pressure against the US dollar following the continued waning of supply from exporters.

The local unit opened trading at K11.010/K11.030 but was later seen being quoted at K11.060/K11.080 on interbank.”

Zambia’s huge trade deficits are also expected to sustain pressure on the kwacha, negating monetary policy efforts to halt its volatility, according to trade experts.

And mid-morning interbank rates showed the local unit trading at an average K11.01 and K11.03 per dollar for bid and offer respectively, according to the Bank of Zambia.

The central bank has continued to heavily intervene in the financial markets to help prop up the kwacha, but market analysts have argued that the action is not sustainable in the long term on account of dwindling reserves.

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