Maravi

BoZ needs to intervene in kwacha fall - Saasa

COMMENT - So much for free markets. If they want to strengthen the Kwacha, do it in a constructive way, tax the mines for a billion a year or more, and build a couple of billion in reserves. Don't throw away currency reserves trying to prop up the currency by having the state buy them up.

BoZ needs to intervene in kwacha fall - Saasa
By Chiwoyu Sinyangwe
Mon 02 Jan. 2012, 13:56 CAT

THE Bank of Zambia needs to reflect and intervene in the current collapse of the kwacha on the backdrop of a strengthening US dollar, says Professor Oliver Saasa. Swearing in the new Bank of Zambia governor Dr Michael Gondwe, President Sata urged the new central bank chief to work at strengthening the kwacha.

The kwacha has come under pressure since the beginning of the last quarter of 2011, closing the year trading for K5, 110 and K5, 130 for bid and offer, a 11 per cent decline.

The weakening kwacha has raised concern among domestic traders who contend the under-pressure currency was hurting local businesses in a net-importing country and could also have a bearing on the country's annual inflation rate which closed last year at 7.2 per cent.

Prof Saasa, a prominent business and policy consultant said the current fallout of the kwacha was a matter of concern to the country's macroeconomic stability and also the need of the industry and commerce.

He said there was need to use some of the foreign exchange reserves estimated at over US $2.3 billion to calm some turbulence in the domestic foreign exchange market.

"You cannot allow a runaway depression of the currency when you have quite significant amount of reserves," Prof Saasa said.

"Right now, our foreign exchange reserves are somewhere over US $2 billion. What the central bank does is that if there is a capital flight in terms of the dollar, because investors are running away to safe havens, you inject a bit of that reserve into the market so that the supply of dollars is sufficient not to upset the value of the kwacha too significantly. Definitely, anything that is way above K5, 200 it calls for reflection on the part of the central bank." Prof Saasa explained that the kwacha has come under pressure and the under pressure euro has resulted in an increased demand for dollar by global currency traders and investors.

"One of the reasons that has stressed the kwacha is because major convertible currencies have gained value," said Prof Saasa.

" Because of the stressed euro, most of the investors are hedging their money in US dollar, and American dollar has gained so much power, and since we are so dependent on the American for much of our trade and commerce, we have actually been affected."

Prof Saasa warned that the intervention of BoZ in the bearish kwacha should not result in exchange controls in the local foreign exchange market. "The central bank sometimes might be required where the kwacha tends to be very stressed but one has to be extremely careful because one does not want to end with a situation whereby you control the exchange rate to a level where you ignore the market and you allow too many administrative controls," said Prof Saasa.

Labels: BOZ, KWACHA, OLIVER SAASA

posted by MrK @ 5:11 PM