Maravi

Kwacha in free fall

Kwacha in free fall
Written by Joan Chirwa
Wednesday, February 18, 2009 7:52:29 PM

THE kwacha on Wednesday broke yet another psychological level of K5,700 against the US dollar, depreciating by 16 per cent since the beginning of the year.

And financial markets expert Miles Sampa has described the kwacha’s K5,700 trading level against the US dollar as exaggerated since it is not supported by a real surge in foreign exchange demand in relation to last year’s recurring demand like oil payments.

The local currency has lost its value by about 16 per cent from January’s trading levels of around K4,900 per US dollar to the current level of K5,700, making it the highest depreciation level the kwacha has reached in years.

The current situation has put further strain on most businesses in the country as they largely depend on imported raw materials to operate.

“The kwacha has lost 10 per cent since February. The depreciated levels are quite exaggerated and the reason being that the cause is all about sentiment and speculation on where the kwacha will reach,” Sampa explained. “When it was announced that we will import maize, there was a general feeling of high demand for US dollar. The levels of the kwacha are therefore exaggerated because they not supported by real demand, they are not supported by real trade transaction. We are likely to see the kwacha correcting to around K5,000 in the short term.”

Sampa said there is no trade to support the current trading levels of the kwacha against the US dollar.

“The local currency will be recollecting slowly in the coming days,” Sampa said. “Reasons for the K5,700 level is due to, among other reasons, the resurfacing of maize importation, slight reduction in foreign exchange converted by the mines to meet local kwacha payments and the US dollar pegging of prices by some retailers. These have led to market sentiments against the kwacha and consequently rendering it bearish.

“However, despite new external transfers not having actualized yet, there is general market anticipation of new demand that will arise from the latest maize importations once payments are due.”

Sampa however said the kwacha was unlikely to reach levels of below K4,000 per US dollar in the short term considering that copper prices on the international market were still way below last year’s peak.

“Levels of below K4, 000 will depend on other external factors. The time the kwacha was below K4,000, copper prices were at peak. In the shortest period, we might not go below K4,000 per US dollar,” said Sampa.

Labels: CURRENCY, KWACHA

posted by MrK @ 7:52 PM