Maravi

Kwacha appreciates by 10%

Kwacha appreciates by 10%
Written by Joan Chirwa
Saturday, May 09, 2009 4:11:44 PM

THE local currency on Thursday recorded a significant appreciation of 10 per cent to trade at K5,100 from the week's opening levels of between K5,600 and K5,700. The kwacha's appreciation of 10 per cent within a week has not been achieved in the past two to three years, according to experts.

"This appreciation is on the back of the International Monetary Fund (IMF) loan to Zambia to boost the country’s foreign exchange reserves," said Miles Sampa, a financial markets expert and former president of the Financial Markets Association of Zambia.

"We saw evidence of offshore investors bringing the money back, looking to invest in government securities. There was indication that some inflow came in. Even people holding foreign exchange in accounts started to convert into kwacha."

Sampa indicated that the next psychological level to look out for was whether the kwacha would break the K5,000 mark.

The IMF has since disbursed US $160 million out of the approved a US $250 million loan to Zambia to boost the country's foreign exchange reserves.

And Citibank Group economist David Cowan's analysis of the sub-Saharan Africa currency stability which looked at Zambia's kwacha, Tanzania and Uganda's shilling and the Ghanaian cedi, indicated that the kwacha would find a new equilibrium level of ZMK5,250 against the US dollar despite the recovery in copper prices seen in the first quarter of this year.

"The Zambian kwacha appreciation will not be significant," Cowan stated. "There has been a sharp weakening in many sub-Saharan Africa (SSA) currencies in fourth quarter of 2008 and first quarter of 2009. Notably the Ghanaian cedi, the Tanzanian and Ugandan shillings and the Zambian kwacha have all fallen to historical lows against the US dollar. This currency adjustment has come after a period of stability and has to some extent created a crisis of confidence in the economic outlook for SSA."

Cowan stated that chances of further withdraw of portfolio investments from Zambia and other countries in the region seem limited.

"We expect that all four currencies will stabilise against the US dollar in second quarter of 2009. However, we think that stabilisation will depend to a considerable extent on the speed with which domestic demand for foreign currency wanes, which in turn will depend on the policy responses of the central banks going forward," stated Cowan.

"Of the four economies [Uganda, Tanzania, Ghana and Zambia], the Zambian current account outlook is the most dependent on the price of one commodity, in this case copper, and the rebound in copper prices in first quarter of 2009 means that the deficit could prove to be much smaller in 2009 than the IMF is currently forecasting. Put another way, the recovery in the copper price may not boost the kwacha, but may place a floor under further falls."

Labels: CURRENCY, DEBT, DEFLATION, IMF, KWACHA, MILES SAMPA

posted by MrK @ 3:13 PM