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StanChart predicts strong kwacha

StanChart predicts strong kwacha
By Chiwoyu Sinyangwe
Saturday September 06, 2008 [04:00]

STANDARD Chartered Bank regional head of research for Africa Razia Khan has observed that Zambia’s end year inflation rate is expected to continue to rise until the end of this year. And Khan has predicted that the local currency is expected to strengthen in the near term on the back of donor flows.

Analysing the state of the Zambian economy after the demise of President Levy Mwanawasa, Khan also stated that the forthcoming presidential by elections slated for this November posed little risk to the economic policy of the country.

“While, we are expecting the kwacha to strengthen in the near term on the back of donor flows and the concerted efforts that we now see underway to raise more domestic revenue ahead of the election, our revised forecast take as their starting point both the recent sell-off that we have seen in the kwacha and the rise of Zambian inflation,” Khan said.

“Whilst continued windfall tax flows this quarter should still be overriding, triggering kwacha strength in the near term, Zambia’s higher inflation rate with Consumer Price Index (CPI) rising 13.2 per cent in August and set to be higher still to suggest that further currency gains beyond third quarter maybe short-lived.”

She also said although oil and food prices were expected to recede from current levels, it might be a while before this had a significant impact on Zambian inflation.

“In line with our outlook for regional southern Africa inflation, we would only expect the downtrend in Zambian CPI to begin in earnest next year, helped by the higher base, and a more aggressive effort at mopping up domestic liquidity. Until the end of the year at the very least, inflations is expected to continue to rise,” she said.

And Khan said the resurgent US dollar, rising levels of risk aversion, and pressure on regional currencies such as South African rand, may also weigh on the kwacha in fourth quarter, which in any case- tends to exhibit seasonal weakness at the end of the year.

“However, Zambian fundamentals remain positive overall. The commitment to macroeconomic stability is firm, and we expect that this will be reflected in rising interest rates, eventually adding to the currency’s yield attraction,” stated Khan.

Labels: KWACHA, STANCHART

posted by MrK @ 3:35 AM