Maravi

BoZ offloads US$5m to rescue falling kwacha

BoZ offloads US$5m to rescue falling kwacha
Written by Joan Chirwa
Thursday, December 18, 2008 9:45:46 AM

THE Bank of Zambia has offloaded over US $5 million on to the foreign exchange market to rescue the kwacha’s free-fall against the US dollar.

The move, according to sources at the Bank of Zambia, necessitated yesterday’s appreciation of the local currency by about five per cent, to trade at an average interbank rate of K5,000 from K5,200 last week per US dollar.

“The Central Bank came into the market and offloaded well over US $5 million just to ease the situation,” said sources.

“This is, however, against what the IMF [International Monetary Fund] wants the government to do. But I don’t think it will be necessary to leave the exchange rate to depreciate further without any intervention. It is incompetence on the part of policy makers because this should have been done when it was clear enough that the kwacha was depreciating at a fast rate against the dollar. We were told that the country has enough foreign exchange reserves, then why didn’t they offload the dollar earlier? Many banks come in such cases, but us we don’t want to just because of the fact that we are a free market economy.”

The kwacha last week posted a 10 per cent depreciation against the US dollar, breaking three psychological levels to trade at an average interbank rate of K5,200.

Experts viewed the situation as a bit “overdone” and hoped the kwacha could gain ground in the short term.

And the Citibank daily market update stated that the kwacha yesterday rallied in trading to close at K5,080 and K5,130 per US dollar after opening at K5,180 and K5,230.

“The kwacha gained on account of some dollar supply flows noted in the market whereas demand was generally flat in the day, with players opting to sell dollars on interbank,” stated Citibank. “Further, in spite of the generally weak sentiment towards the kwacha, there appears to be a general feeling by some economic analysts that the local currency depreciation may perhaps have been a bit 'over done'. We anticipate some dollar selling by exporters to meet tax and monthend obligations and this may well cause the kwacha to be steady to slightly bullish into year-end in the range of K4,900 and K5,300 away from earlier view of K5,500 per US dollar on the top side.”

And financial market expert Miles Sampa early this week said the local currency was expected to post further gains against the US dollar after breaking three psychological levels last week.

“It will be a case of which aspect of the equation has moved in terms of supply and demand of the dollar,” said Sampa. “If we have increased demand for the dollar, the kwacha will depreciate, and if supply increases, the kwacha will appreciate.”

The kwacha registered a sharp depreciation against the US dollar within a short period owing to a huge demand for the green back on the local foreign exchange market. Experts indicated that the plummeting copper prices on the international market were largely behind the kwacha’s fall, as a tonne of the red metal fetched for as low as US $3,100 over a week ago owing to the current global economic crisis.

Labels: BOZ, IMF, KWACHA

posted by MrK @ 9:46 AM