Kwacha weakness likely to be limited – FNB

PRESSURE on the kwacha to decline will likely be limited this week as companies convert their dollars to meet tax obligations, market watchers said.

The kwacha has come under pressure against major convertibles like the US dollar, declining to a record low last due to a shortage of dollars. The local unit hit a record low of K6.68 to the dollar and was trading at K6.64/6.66 from a close of 6.5850/6.6250 last week. By Friday, the pressure continued with the local unit trading at K6.60/6.74.

The currency has lost more than a quarter of its value against the dollar this year, having hovered around the 5.5 level for much of 2013. FNB said the continued corporate demand for the greenback together with a significant reduction in US dollar inflows has seen the kwacha continue to lose ground, trading above K6.60 against the dollar.

 “We are of the view that there is still some demand for the greenback on the local market although kwacha weakness will most likely be limited as corporates convert dollars in order to meet their tax obligations,” the bank explained in its daily market update.

Market analysts say apart from the increasing dollar demand, tightened foreign exchange inflows into Zambia due to falling prices of copper have also put pressure on the kwacha.

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