Sharp Kwacha rise no surprise
Published On February 21, 2024 » 780 Views» By Times Reporter » Business, Stories
 0 stars
Register to vote!
. By James Muyanwa

BARELY a fortnight ago, when the value of the Kwacha seemed to have been heading to breach the psychological barrier of K30 per dollar, everyone, especially the highly partisan social media politicians, was talking foreign exchange (FOREX).
All avid government critics predicted how the value of the Kwacha would degenerate and trade above K30 per dollar in a few days’ time.
They chose to forget that last month, Finance and National Planning Minister Situmbeko Musokotwane had projected a sharp eventual rebound of the Kwacha due to, among other measures, the subsequent revival of the mining sector.
This was when Dr Musokotwane revealed that International Resources Holding, the new investor in Mopani Copper Mines, would soon release US$80 million as part of reviving asset operations, which would be followed by another $50 million before completing a cumulative release of $620 million.
He had said that the Kwacha would recover its losses against the dollar and warned currency speculators to “be careful” as “the kwacha is about to make a counterattack, not through imagination but because tangible money is going to come in the economy”.
The sharp rise in the value of the Kwacha should have, therefore, not come as a surprise especially to stakeholders who follow events.
At least this paper foresaw it and started keenly following the local forex market activities as early as February 5 this year, what with the supplementary measures by the Bank of Zambia (BoZ).
The local currency recovered the most last Friday closing between K23 and 24 per United States (US) dollar after opening the day at between K26 and 27, leaving some players shocked.
The same critics of government went to town telling people how a strong Kwacha hurts the economy and that the Kwacha appreciation was stage managed.
The local currency recorded another drastic move on Monday and closed the day slightly above K22 per dollar from around K24.50.
According to the Absa Zambia Market Update for yesterday the Monday session saw the Zambian Kwacha post significant gains against the dollar.
After opening the market at K24.50 per dollar for bidding and K24.55 for offering it gained gradually touching an intra-day level of K23.40/K23.45 by mid-morning before finally closing the market at K22.47/K22.52.
At some bureaux de change it traded in the K20-K21 per dollar bracket on Monday.
ABSA Zambia says the Kwacha is buoyed by an upsurge in inflows from various market players and the Central Bank’s support in recent weeks and anticipates in the short-term the local currency is likely to maintain the current trajectory as corporate entities prepare to settle for their month-end obligation.
This is evident from yesterday’s data when the kwacha started at a better level than it closed on Monday.
Business Times traces the current splendid performance from February 5 when the latest measure by the BoZ took effect.
From trading at nearly K28 per dollar at the opening of the session on that day it embarked on its daily rampage to where it is today, in terms of value.
The week before, the BoZ announced the increase in the minimum Statutory Reserve Ratio (SRR) on both local and foreign currency deposits by nine percentage points to 26 per cent from 17 per cent.
The SRR is the minimum percentage of deposits that a commercial bank has to maintain in form of liquid cash, gold or other securities before loaning out funds to customers.
The BoZ measure on SRR increase seems to have kept in check the amounts of Kwacha on the market whose reduction is expected to continue lessening the demand for the dollar thereby instilling some level of Kwacha buoyancy.
Another measure which could have impacted the Kwacha is the implementation of the Export Proceeds Tracking Framework (EPTF) last month.
The framework entails that all exporters route their export earnings through an account at banks domiciled in Zambia while maintaining the full rights and control to use their funds as they deem fit and continue meeting their routine obligations.
Deputy BoZ Governor, Francis Chipimo said last year that the implementation of the EPTF, as announced in the national budget, would curb K1-billion annual leakages from export earnings.
According to Dr Chipimo the tracking framework is intended to make fully operational the electronic Balance of Payment (e-BOP) monitoring system and subsequently close all the information gaps.
As much as the Central Bank had made progress in improving the quality of BoP statistics by strengthening the regulatory framework requiring the submission of statistics, conducting the private capital flows survey and implementing the e-BoP monitoring system, there were still information gaps.
This obviously has a trickle-down effect on the value of the Kwacha.
Just last week the BoZ announced the increase in Monetary Policy Rate (MPR) from 11 per cent to 12.5 per cent to arrest the rise in the rate of inflation and that has some effect on the forex market as well.
Therefore, some economic experts have attributed the recent good performance of the Kwacha to the BoZ’s move to adjust the MPR, increase the SRR and injecting US$50.3 million into the market.
Economist Mathews Muyembe says the appreciation of the Kwacha is a welcome move and should set a pace for economic stability.
“This is a good move and it is triggered by the recent BoZ interventions which will in short term sustain the Kwacha gain,” Mr Muyembe says.
He says the country, going forward, should embrace import substitution through heightened manufacturing activities in the economy to sustain the Kwacha stability.
Kitwe-based business consultant Augustine Mubanga says that the intervention by the BoZ and optimism in the mining sector will continue driving the Kwacha appreciation.
“The measures by the Central Bank have started bearing fruit and I think the optimism around the mining sector has also contributed to the Kwacha appreciation,” Mr Mubanga says.
Other experts say BoZ measure to increase the SRR, its liquidity mopping up and the growing optimism in the mines’ revival are some of the factors boosting the Kwacha.
Emmanuel Zulu says the move by the BoZ to increase the SRR has contributed to the current development.
Mr Zulu says the high demand pressures in the foreign exchange market contributed to the higher inflation, therefore, the move taken by BoZ is necessary to strengthen the Kwacha.
He says increasing the interest rate is also necessary to discourage borrowing and reduce the volumes of the Kwacha in circulation.
“The BoZ has been firm on ensuring that its meet their target of ensuring that inflation rate is within six to eight per cent, with the current inflation rate of 13.2 per cent it is actually compelled to act aggressively to arrest the rise in inflation,” he says.
For another economist Mwiya Ikabongo the good performance of the Kwacha is a direct response to the Government measures to revamp the mining sector.
Mr Ikabongo says the successful negotiations with the mines is beginning to bear fruit and once the full operations resume, the Kwacha is expected to rise even more.
Partner Siabutuba says to sustain the Kwacha appreciation, there is need to increase production in key economic sectors of the economy such as mining, agriculture, manufacturing and tourism.
Mr Siabutuba calls for continued coordination between the Central Bank measures and the Government in general in economic activities.
“Government should continue putting in policy measures that are going to attract foreign direct investment to bring more dollars in the country,” he says.
Indeed two large mines – Mopani and Konkola – are back in private hands and control and will, therefore, continue receiving the much-needed capital injections which will boost the forex inflows.
That, coupled with the expected earnest revival of the sector, and the various BoZ measures, will help to sustain the local forex market as well as the gains which have been made so far.

Share this post
Tags

About The Author