Kwacha falls as govt warns on FX reserves depletion

Zambia’s under-pressure kwacha fell on Friday, shedding around 2 percent after the country’s finance minister signalled that interventions that have supported the currency since steep declines on Monday would be scaled back.

The kwacha fell more than 17 percent against the dollar on Monday, its biggest one-day fall on record, as the price of the country’s main export copper hit a one-month low amid concerns over the local operations of mining giant Glencore. A rating downgrade the previous Friday from credit agency Moody’s also weighed..

The kwacha clawed back some of its losses in the three days to Thursday as the central bank supported it by selling dollars in the market.But Finance Minister Alexander Chikwanda said on Friday the government would not run down its hard currency reserves and planned to maintain a free floating exchange rate.”We will not undertake any measures that will lead to the depletion of our meagre foreign exchange reserves,” he told parliament.

The kwacha traded down more than 2 percent at 12.1200 per dollar at 1006 GMT.John Mapiye, head of Treasury at local bank BancABC, said Chikwanda’s statement meant that the central bank would not sell dollars as aggressively as it had done over the last few days.”The kwacha was appreciating …because the central bank was selling dollars,” Mapiye said. “Today, we have not seen them in the market and the kwacha has gone back where it was.”

The largest mining union in Zambia, Africa’s second largest copper producer, expressed concern on Thursday about the kwacha’s rapid depreciation at a time when mines were already hit by falling copper prices and a power shortage.The central bank was likely to lift the cap on bank lending interest rates, which stands at 24.5 percent, Mapiye said.

“This would bring in foreign exchange because as it is an exporter would rather get an overdraft from a bank instead of selling dollars to meet kwacha obligations,” he said.The International Monetary Fund said in May that Zambia’s economy was at risk from budget imbalances, lower copper prices and policy uncertainties. Chikwanda told Reuters this month the economy was likely to grow less than 5 percent this year, undershooting a 6 percent forecast.


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