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Govt rules out controls on volatility in forex market

Govt rules out controls on volatility in forex market
Written by Kabanda Chulu and Chiwoyu Sinyangwe
Monday, February 23, 2009 7:09:06 AM

FINANCE minister Dr Situmbeko Musokotwane has said the government has no plans to re-introduce controls to stop excessive volatility in the foreign exchange market.

And immediate past Economics Association of Zambia (EAZ) national secretary Chibamba Kanyama has warned that continued depreciation of the kwacha would destabilise the economy in general.

And BUK managing director Benjamin Katubiya has asked the Bank of Zambia (BoZ) to intervene in the local forex market which was mostly hurting local entrepreneurs because the local economy would only be developed by Zambians and not foreigners.

During a meeting with the private sector to discuss measures to address the exchange rate volatility on Friday, Dr Musokotwane said the supply of US dollars on the market was more than adequate and volatility could not be justified.

“Economic fundamentals are fairly alright, even the price of copper is quite good hence this volatility cannot be justified and we strongly believe that the supply of dollars is more than adequate,” Dr Musokotwane said.

“What we have is the best system and so far it has functioned well and we do not want to come under pressure and say let’s abandon this and try that because abandoning this system is no solution at all, all we need is to work together to ensure that that stability comes back to the market for it to work properly.”

He advised against panic buying by some stakeholders in the economy.

“These movements cannot be justified and this is because some of us are front loading or buying quantities much bigger than we need hence causing panic on the market,” Dr Musokotwane said.

BoZ governor Dr Caleb Fundanga said there was too much speculative behaviour and dollarisation by certain sectors of the economy.

“The system we have is the best and we are committed to ensure that it survives and forex inflows are still coming from the mines and non traditional exports so this volatility is because of speculative actions and also there is a tendency to demand payment in US dollars when selling local produce such as wheat and maize,” Dr Fundanga said.

And Kanyama said there was need for the government to restore economic confidence as a matter of urgency so that people do not irrationally speculate on currencies.

“Zambia is an import dependant country and any such unpredictable and steep changes in the exchange rates have the potential of negatively impacting on macro-economic stability of the country and because of the depreciation of the kwacha, Zambia will not enjoy the reduction in the price of oil on the global market. If anything, the Energy Regulation Board may soon hike the price of fuel to protect some margins of profit for oil marketing companies,” Kanyama said. “The fear now is that the depreciation may continue until maize supplies stabilise in June, donor inflows start and investors begin to respond to government securities.”

And in an interview last week to announce the completion of the new US $1.2 million [K6. 6 billion] spare parts and office premises along Kafue Road, Katubiya said the local economy was import oriented and that the current collapse of the kwacha against most convertible currencies would further exacerbate the problems local companies were facing which were stemming from the effects of the global financial crisis.

“Our business is import oriented. All these parts are imported from outside, so if we have any devaluation in the kwacha, customs duty goes up and the cost of landing these goods also goes up,” Katubiya said. “The ironic thing about the Zambian market is that it is not price sensitive whereas if a trader wants to increase prices, you have severe rejection from clients, they will just not buy your products. Just as BUK, last week we sat here for four days reducing the prices in order to arrest the falling sales and to try to encourage these clients to buy as they had been hit by the effects of the current global economic crunch.”

Labels: CALEB FUNDANGA, FOREX, SITUMBEKO MUSOKOTWANE

posted by MrK @ 7:10 AM